# Overview of Our Energy Modeling Problem

We live in a world with limits, yet our economy needs growth. How can we expect this scenario to play out? My view is that this problem will play out as a fairly near-term financial problem, with low oil prices leading to a fall in oil production. But not everyone comes to this conclusion. What were the views of early researchers? How do my views differ?

In my post today, I plan to discuss the first lecture I gave to a group of college students in Beijing. A PDF of it can be found here: 1. Overview of Energy Modeling Problem. A MP4 video is available as well on my Presentations/Podcasts Page.

Many Limits in a Finite World

We live in a world with limits. These limits are not just energy limits; they come in many different forms:

All these limits work together. We can work around these limits, but the workarounds are higher cost–for example, substituting less polluting energy resources for more polluting energy resources, or extracting lower grade ores instead of high-grade ores. When lower grade ores are used, we need to process more waste material, raising costs because of greater energy use. When population rises, we must change our agricultural approaches to increase food production per acre cultivated.

The problem we reach with any of these workarounds is diminishing returns. We can keep increasing output, but doing so requires disproportionately more inputs of many kinds (including human labor, mineral resources, fresh water, and energy products) to produce the same quantity of output. This creates higher costs, and can lead to financial problems. This phenomenon is one of the major things that a model of a finite world should reflect.

Economists Views

Economists developed their views of the economy long ago, when limits seemed to be far in the distance. Thus, the models they built do not reflect the expected impact of limits. They are missing variables that would be needed to adjust for changes in the economy’s behavior as limits are reached.

The story in Slides 3 and 4 tends to be true if we are far from limits, but is it really true when we are close to limits? Perhaps diminishing returns as we approach limits changes the results.

World Oil Situation as We Approach Limits

Perhaps we can get some indication of how diminishing returns are affecting the economy by looking at historical oil supply and prices. Up until 1970, US oil production grew quite steadily.

After 1970, oil production suddenly began to decline. Oil companies did not expect such a decline; they assumed that oil production would rise endlessly. Once oil production began to decline, oil companies quickly began trying to find ways to fix their problems. One of these approaches was quickly to ramp up production in areas that they knew contained oil, but hadn’t previously been drilled. These included Alaska (northern United States), Mexico, and the North Sea. Oil production in these areas is now in decline.

Several ways were also found to reduce oil usage. These included change from oil to alternate fuels for electricity generation and home heating, and offering smaller, more fuel-efficient cars. With this combination of approaches, oil prices were brought down, most of the way to the $20 level (Slide 7). The inflation adjusted level of oil prices is important because oil is the single largest source of energy use in both the US and world economy. If oil prices are cheap, it easy to grow food cheaply, and manufacturing and transport can be done cheaply. Because of this, the economy tends to grow. If oil prices rise, economic growth tends to slow, because the cost of many types of goods (including oil products, food, and building new homes) tends to rise faster than wages. It becomes more expensive to replace infrastructure such as roads and pipelines as well. The higher cost of oil effectively acts as a “tax” inhibiting economic growth. Oil prices again reached a high level in the early 200os as we again began to reach limits of the amount of oil that could be extracted at the then-available price. This time we weren’t able to cut back on world demand, so prices tended to stay high. Instead, the big change made was in oil supply, with higher oil prices enabling (after a several years time-lag) greater production both from US oil from shale formations (called “tight oil” in Slide 6 above) and from the oil sands in Canada. The question becomes: can the economy really function adequately on$100+ barrel oil? Or do the negative feedbacks from these high oil prices have too adverse an impact on economic growth?

Slide 8 shows more detail regarding production and prices for recent years. We see that oil prices were generally rising up until mid 2008, and then dropped steeply. Prices rose again after several types of economic stimulus were added. More government spending was added, interest rates were dropped to very low levels and a program called quantitative easing (QE) began.

Prices stayed at a level a little over $100 barrel from January 2011 though mid-2014. More recently, oil prices have dropped to a little more than half of their previous level. This decline in oil prices appears to correspond to a time when world debt is not rising as rapidly: the US stopped its QE program, and China’s debt no longer rising as rapidly. Thus, some of the economic stimulus that helped hold oil prices up is disappearing. The problem we are now encountering is not the high price problem that economists thought would bring on more supply. Instead, we are encountering a problem with oil prices that are too low for oil producers to make a profit. Such low oil prices can quite possibly bring down world oil production, because investment in oil production is no longer profitable. A person might ask: Is the low price situation we saw in 2008 and are encountering again in 2014-2015 what diminishing returns really looks like? Is the problem we encounter as we reach limits one in which oil prices drop too low, rather than rise too high? In 2008, huge stimulus efforts were required to bring oil prices were brought back up to the$100+ level. Perhaps one point raised by economists (Slide 3) was correct: Maybe there is a connection between economic growth and oil demand. Perhaps the issue as we reach limits is that world economic growth sinks too low, and it is because of this slow growth that wages stagnate, debt stops rising quickly, and oil (and other commodity) prices drop too low.

Now let’s look at what some early energy researchers have said.

M. King Hubbert

Many believers in Peak Oil theory consider M. King Hubbert to be the originator of their theory. It seems to me, though, that Peak Oilers have inadvertently picked up some of the economists’ theories, and mixed them with Hubbert’s theories.

It seems to me that the only way a Hubbert Curve might happen is if oil prices stay high, as we approach limits. That way, as much oil as possible can be extracted. If oil prices fall too low, then the decline may be much quicker. If low oil prices are a problem, above ground problems such as governments of oil exporting nations collapsing, or rising debt defaults leading to bank failures, may be a problem.

Dennis Meadows led early computer modeling efforts at MIT regarding limits of a finite world. His wife, Donella Meadows, led the write-up effort regarding this model in a 1972 book called “Limits to Growth”. The model looked at physical quantities of resources, expected amounts of pollution, and expected population trends. The base model suggested that the world would start reaching limits in roughly the current timeframe.

In fact, more recent analyses suggest that the base model is more or less on track.

I don’t think that we can count directly on this analysis, however.

Charles Hall

Prof. Charles Hall has been one of the recent thought-leaders with respect to oil limits and how they might play out. He started work in the early 1970s as an ecologist, studying the energy patterns of fish. When he read about the possibility of energy shortages that might occur in the 1972 book Limits to Growth, he tried to adapt an approach used for studying energy patterns of fish to the world of energy production. The result was new way of measuring the efficiency of a particular energy product, called Energy Return on Energy Invested (EROEI).

This idea was an advance when it was first developed, but it has a number of practical difficulties. One of these difficulties is that its usefulness is tied to a particular view of how oil limits will affect us, namely that prices will rise, and this will allow a slow transition to alternative fuels that are less favorable in terms of EROEI. On Slide 21, this is Item (2).

At this point, it is my view that the EROEI approach to analyzing energy products can be misleading and needs updating. Energy extraction is much more complicated than the energy use of fish swimming upstream. The EROEI approach, besides being tied to the Peak Oil view of how limits will occur, is difficult to calculate. Different researchers get quite different answers, when analyzing the same energy product.

Furthermore, EROEI looks at a piece of energy costs (those involved with production at the well head), but how this piece relates to the total varies from one type of energy to another. It lumps together cheap energy and expensive energy. There are several other issues as well, with the result being that in practice, low EROEI doesn’t necessarily correspond to expensive to produce, and high EROEI doesn’t necessarily correspond to low cost to produce.

I should point out that the same problem exists with a wide range of similar metrics including Life Cycle Analysis, Energy Payback Period, and Net Energy. In practice, what seems to happen is that if an energy type is high-priced, the use of one of these metrics is used to justify its production, anyhow. Low EROEI (for example, of biofuels) does not seem to be a barrier to production, even though it was the hope of Prof. Hall and other EROEI researchers that this would be the case.

My Involvement in Energy Analysis

I became acquainted with Prof. Lianyong Feng in 2009, when he attended the Biophysical Economics Conference in Syracuse, New York, held by Prof. Charles Hall, and heard me speak.

How Do Oil Limits Really Affect the Economy?

This is the question I have been working on. I will try to explain some of my findings in the next several sessions.

Early researchers were handicapped because the issue of oil limits crosses many different fields of research. They took approaches from their own areas of study, and worked with them. These approaches offered partial insight into the problem, but didn’t completely answer what might happen in the future.

It was not obvious to early researchers which parts of economists’ theories were wrong. I have had the benefit of seeing how the system works in practice in several periods: in 1973-1974, in 2008-2009, and now in 2014-2015. I have also been fortunate enough to find a number of recent studies that add new insights as to how the system really works. So I have taken a step back and developed at the least the start of a new theory, which is different from EROEI theory. This is what I will discuss in the next few sessions.

A little explanation behind this series of lectures and my four week stay in China is perhaps in order. When I was in China, Prof. Feng discussed with me some of his intent behind asking me to give this series of lectures. Prof. Hall is now retired, and there is no obvious replacement for him. Prof. Feng would like me to take a more active role is figuring out in which direction energy research should now be headed, both for his own staff, and for others around the world. A better understanding of how the system works could theoretically help researchers everywhere.

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.
This entry was posted in Financial Implications and tagged , , , , , , . Bookmark the permalink.

### 589 Responses to Overview of Our Energy Modeling Problem

1. Schinzy says:

If anyone would like to see why I think oil prices will stay low until supply falls, I have posted my reasoning here: http://www.math.univ-toulouse.fr/~schindle/articles/2015_4_debate/. The post has been submitted to the Toulouse School of Economics debate forum.

• Gary says:

• Don Stewart says:

Dear Schinzy
Should the sentence
The decrease in the price of oil is too broadly based to be attributed to any possible increase in oil production.

And the town in Texas which attempted to ban fracking was Denton, not Brenton. I believe the Texas Legislature overturned the ban.

Don Stewart

• Glenn Stehle says:

From the post: “In this post we will defend the idea that the drop in oil prices is not due to an increase in supply, but rather to 9 years of stagflation resulting in a decrease in the market.”

I wish you would show me where the “decrease in the market” is on this graph:

http://www.api.org/~/media/oil-and-natural-gas-images/gasoline/whatsup-hi-res/world-liquid-fuel-consumption.jpg

Or on this one:

http://i.imgur.com/8cmigsC.jpg

Or using your theory, how do you explain this?

According to Cornerstone Analytics, demand is up some 1.7M/D in 1Q15 vs. initial estimates from others of less than 1M/D average rise for the year. So the price drop is clearly seeing a demand response. The recent monetary easing in rates and reserves by China will only help to increase demand further from here.”

http://oilprice.com/Energy/Oil-Prices/Saudi-Price-War-Strategy-May-Blow-Up-In-Their-Face.html

• Schinzy says:

You are correct, there is a problem. Part of this may be attributed to decreasing EROEI. To really compare, one has to know what people are doing with the liquids. Of course in the above chart 2 of the 5 years are estimates. In fact the first 3 years are estimates as well. What I’m getting at is qualitatively what the contraction phase of oil production will look like. Low prices will decrease demand and high prices will decrease the market. I might be off on my timing, but the longer oil prices stay below a significant percentage of production, the more it looks like the contraction phase has begun. Oil companies will have a lot of adjustment to do.

2. Don Stewart says:

Dear Gail and Finite Worlders

This will be a little exercise in exploring the aspect of BW Hill[’s model which uses the concepts of the work required to build the infrastructure which does the work of producing oil products and services. In effect, we have TWO work processes: the building of the infrastructure, and the production of oil and its products such as gasoline or diesel. In addition, we might add yet another layer of cost to account for the infrastructure which must be built and maintained in order to give the gasoline or diesel any value..the roads and bridges and automobiles and trucks and highway cops and armies and so on and so forth.

The first two steps are accomplished with a thermodynamic efficiency of about 20 percent. So if we start with the energy potential in a barrel of crude oil, we get 20 percent of that energy in the first round of work, and 20 percent of 20 percent in the second round of work, for a throughput of only 4 percent. If we tack on the cost of the infrastructure, either explicitly or by the way we statistically estimate our model, it is easy to imagine that we are getting no value at all from the search for and production of oil. BW Hill estimates that the oil industry is currently losing more than a trillion dollars each year.

If we are currently at the end of the Age of Oil, then what alternatives do we have? Are solar and wind and advances in mechanically assisted photosynthesis the answer. I will just note that we are still talking about a 2 stage process which is likely to yield around 4 percent of the original energy potential in a form which can do work. And we have not accounted for the construction of the infrastructure which is required to turn the 4 percent into work which is actually useful to humans. So it might pay to be clever, but then again, it probably won’t.

So, gazing into our crystal balls, what might we envision for the future of Homo Sapiens (we will leave out of our imagination all those Homo who are not Sapient).

Harari, in the book Sapiens, on page 8 has a section labeled The Cost of Thinking. In it, he discusses the reasons why a big brain is relatively rare among animals. Briefly, it is metabolically expensive. Evolution has, with one spectacular exception, not selected for animals with the characteristics of humans. For tens of thousands of years, humans got along without industrial society. You will find a good description of that society, both as hunter-gatherers and as late as 1750, in the pages which follow. Most all work was accomplished by human and domesticated animal muscle. It is true that there were mills which used wind and water power. These mills are example of a two stage process. The human and animal muscle which built the mills was about 20 percent efficient, and the mills were probably about 20 percent efficient, so a mill grinding corn was about 4 percent efficient compared to the theoretical energy held by the water turning the mill-wheel using gravity.

If you walk on a treadmill, you are turning calories into motion with about 20 percent efficiency. Now let’s compare walking from point A to point B versus driving an automobile from point A to point B. The efficiency of the automobile is at best 4 percent and very possibly even negative at the present time. Since we have no other source of energy which can subsidize the oil dependent method, it is obvious that a society which persists in driving an automobile from point A to point B when the energy efficiency of oil extraction is declining will catabolize its own wealth and pretty quickly collapse. I have shown that Hill’s logic implies a Seneca Cliff collapse.

If we walk from point A to point B, foraging food as we go, we are 20 percent efficient. Since natural photosynthesis delivers 3000 exajoules of work which becomes the potential energy for our forager, walking looks like a very good alternative. As we replace foraging with agriculture, we open up a Pandora’s Box of possibilities. Traditional agriculture was moderately destructive, while industrial agriculture is horrifically destructive…but we now have good enough science to know how to do it all better. Perhaps a ‘modern biological farming’ system can efficiently supply the energy that our walker needs…maybe he carries an apple and some nuts with him.

Besides transportation, we need a dwelling. The sun delivers an astronomical amount of energy and work to Earth every minute that it shines, so a passive dwelling can make use of the energy we need for warming. Cooling in hot climates is probably best accomplished with caves, such as root cellars as places of retreat during the heat of the day. These alternatives are not energy hogs.

Cooking and preserving food are currently very large energy hogs in the Western World. It is clear that a kitchen garden can assist in greatly reducing the energy demands of food, but it is not clear how much the cooking demand can be decreased.

What about all the social and political and corporate infrastructure which enables us to actually use a barrel of oil to produce something we want. Harari has a section, on page 356, titled The Collapse of the Family and the Community. ‘Prior to the Industrial Revolution, the daily life of most humans ran its course within three ancient frames: the nuclear family, the extended family, and the local community. Most people worked on the family farm or the family workshop, or they worked in their neighbors’ family businesses. The family was also the welfare system, the health system, the educational system the construction industry, the trade union, the pension fund, the insurance company, the radio, the television, the newspaper, the bank and the police.’

Harari points out that most empires did not try to intervene in the business of the families and communities. For example, in the Ming Empire, the population was organized into groups of ten nuclear families. Taxes were levied on the group of 10, which had to apportion the tax load among the families according to their notions of ability to pay and justice and petty politics and the other ways that small groups work. The Ming Empire, therefore, did not have to pay a horde of bureaucrats to apportion the tax load, collect taxes from individuals, and so forth. Edo Japan did levy taxes on farmers, but the taxes were levied in the rice that the farmers grew, and a great deal of the practical aspects of farming were dealt with by the local communities who were expected to operate things such as irrigation systems. The current political maneuvering in California to divide up their dwindling water would not have happened in Edo because the imperial government had no intention of writing thousands of pages of laws governing irrigation. Current government policy in the US and the EU seems to be going in the direction of ever more detailed government meddling in private affairs…e.g., the efforts to eliminate cash and force everyone to use debit cards, for example. The NSA spying and the Big Data in Silicon Valley are other examples of micromanagement in an attempt to stave off systemic collapse.

Looked at from the standpoint of thermodynamic efficiency, one might expect the end of the Age of Oil to be accompanied not by Big Brother, but by the return of communities and families and minimally intrusive Empires.

Harari traces out the changes in the Human Mind which were occasioned by the Cognitive Revolution (tens of thousands of years ago), the Agricultural Revolution (10,000 years ago), and the Industrial Revolution (250 years ago). If the scenario that I have laid out above is anything near correct, we are probably headed back to a world where we will need an Agricultural Mind, or possibly even a Hunter-Gatherer Mind, depending on how much if any of civilization we can salvage. Extreme pessimism holds that the future belongs to the roaches and microbes and is of no concern to humans.

Don Stewart

• garand555 says:

Don, in the absence of an external threat, I would add that Big Brother could be very destructive on its way out. It is dead set on maintaining BAU, and the less this becomes possible, the more desperate it will become. You won’t get elected if you tell people that the future is going to suck in today’s world. That’s one impossible expectation to manage.

• Don Stewart says:

Dear garand555
Agreed. As the old saying ‘eliminate with maximum prejudice’ illustrated, our governments and corporations seem intent on holding on to power even if it requires treating the population ‘with maximum prejudice’.

Don Stewart

• edpell says:

Don, they can do with their livestock whatever they will.

• Stefeun says:

Don,
your example with the energy efficient walker reminded me of this calculation Ivan Illitch made in the 1970s, about the “real speed” of a car, which was, in average, only 3.7mph (today the average car is likely to be slower than a pedestrian…):

“The main notion of Ivan Illich is the concept of counterproductivity: when institutions of modern industrial society impede their purported aims. For example, Ivan Illich calculated that, in America in the 1970s, if you add the time spent to work to earn the money to buy a car, the time spent in the car (including traffic jam), the time spent in the health care industry because of a car crash, the time spent in the oil industry to fuel cars …etc., and you divide the number of kilometres traveled per year by that, you obtain the following calculation: 10000 km per year per person divided by 1600 hours per year per American equals 6 km per hour. So the real speed of a car would be about 3.7 miles per hour.”
from: http://en.m.wikipedia.org/wiki/Ivan_Illich

While looking for a link I also found figures about energy consumed by a pedestrian and a cyclist:
“Man, unaided by any tool, gets around quite efficiently. He carries one gram of his weight over a kilometer in ten minutes by expending 0.75 calories. Man on his feet is thermodynamically more efficient than any motorized vehicle and most animals. For his weight, he performs more work in locomotion than rats or oxen, less than horses or sturgeon. At this rate of efficiency man settled the world and made its history.

Man on a bicycle can go three or four times faster than the pedestrian, but uses five times less energy in the process. He carries one gram of his weight over a kilometer of flat road at an expense of only 0.15 calories. The bicycle is the perfect transducer to match man’s metabolic energy to the impedance of locomotion. Equipped with this tool, man outstrips the efficiency of not only all machines but all other animals as well.”

• Don Stewart says:

Stefeun
Agreed. Thanks for the examples….Don Stewart

Remember the thousands of bicycles on the streets of Beijing when Nixon was there? Why is it bumper to bumper cars and motorcycles now. It takes a heavy hand to stop people from doing what they want to do. You want the heavy hand applied world wide? You think it wont come down on you?

• Don Stewart says:

If the work that we can get from oil has the poor prospects as shown by BW Hill’s model, then the automobiles will disappear as if by magic. What people think they want will play a minor role.

Don Stewart

• Stefeun says:

Exact (I like “think they want”).
As for the “heavy hand”, it’s already there, everywhere; we may feel it more accurately once things start to get tougher, at least for a while.

• kesar0 says:

Good point!

• “Remember the thousands of bicycles on the streets of Beijing when Nixon was there? Why is it bumper to bumper cars and motorcycles now.”

Because humans prefer to drive a car, rather than ride a bicycle.

• Also, the existence of jobs (created through the use of coal primarily) has given rise to higher wages which permit some people to afford cars.

• Glenn Stehle says:

Well I’m curious, Don.

You frequenty tout BW Hill.

But back up this thread, BW Hill let it be known the he is quite the believer in the utility or price theory of value. The price theory of value is the theory of value embraced by orthodox economists — postclassical and neoclassical economists — and with a fervor similar to that with which BW Hill ebraces it.

But here’s the rub: The price theory of value inheres values that are 180º opposite to those which you express in your comment. As Robert L. Heilbroner notes, only those individuals

that have been conditioned by historic experience to seek maximizing objectives and to engage in competitive behavior will become subject to the order-bestowing influence of abstract labor or utility. This excludes from the reach of value theory based on these fundamental principles all homoeostatic, traditional, premarket, and specifically precapitalist societies and, to an increasing degree, “postcapitalist” societies as well. It is to these systems that normative or historical resolutions apply with special pertinence…

So is it not possible to find someone to admire whose values are more in line with your own? I mean it’s not like there aren’t hundreds or even thousands of others out there on the web who are trying to spread the message that “we are currently at the end of the Age of Oil.”

• Don Stewart says:

Glenn Stehle
I only tout one thing about BW Hill’s models: they point out the difference between potential energy and useful work, and how what I will call Two-Stage Production Processes exacerbate losses of energy potential. I will not comment pro or con on the methods he used to estimate his coefficients. When I say that anyone proposing a model which is consistent with thermodynamics needs to pay attention to the Two-Stage problem, that doesn’t mean that they have to adopt other methods from Hill. If someone can build a better model, I’m all for it.

But when I see how much trouble Hill has had convincing others that there is a difference between energy and work, and that the more stages required, the less useful work can be done, I think that most people simply don’t think about the issues from a thermodynamic perspective.

Gail frequently uses the chart of the Hubbert curve with the Nuclear Energy curve taking off from the point of maximum production of oil and increasing into the future. Gail states that we cannot expect to see the symmetrical downslope of the Hubbert curve in the absence of a replacement. And I think that is BW Hill’s insight also. Ugo Bardi arrives at his Seneca Curve through yet other reasoning and evidence. Whether Gail arrived at her conclusion through the use of thermodynamic thinking or some other method, I’m not sure.

What does this have to do with the monetary theory of value? Today, anyone producing a product at a loss is in an unstable situation. Tight oil producers have been doing that, with frequent denunciations of ‘ponzi scheme’ from the Peak Oilers. Once the ponzi is recognized, funding will probably dry up. Those are just the facts. It doesn’t matter whether money is good or evil.

When I talk about a relocalized economy functioning with Harari’s triumvirate of nuclear family, extended family, and community, I am not claiming that such an environment is ‘better’ than global capitalism. It’s just that it is inevitable IF BW Hill’s model is anywhere close to being correct. I am well aware of both the advantages and the disadvantages of a return to such a social organization. For one thing, as I discussed on the college rape issue, when it is up to families to avenge wrongs, there tends to be a lot more violence. Most theorists explaining the decline in violence in recent decades think that the governments’ forceful claim to a monopoly on violence has reduced the total level of violence. It is no longer acceptable, at least in the West, to kill your wife and her lover or to kill the neighborhood boy who seduced your sister. Yet, as Harari points out, what we might label ‘weak Empires’ generally let such local disputes be settled between the disputants….which frequently involves violence. I’m not claiming it’s ‘better’, just likely.

Harari points out that 90 percent of what was produced in the Middle Ages was never sold. It was used very close to home and if it was traded or gifted, it wasn’t for money. Such a system is very different than the one most people experience today. It has features to like and features to dislike. But it may well be in our future simply by necessity.

Don Stewart

• Glenn Stehle says:

► “But when I see how much trouble Hill has had convincing others that there is a difference between energy and work…”

Have you ever stopped to think that maybe the reason Hill has so much trouble convincing others is not because there is something wrong with others, but with Hill?

Even a person with the most rudimentary knowledge of physics knows there is very little difference between work and energy. So most people, and rightly so, probably think Hill is making much ado about nothing. Take this from Wikipedia, for instance:

The SI unit of work is the joule (J), which is defined as the work expended by a force of one newton through a distance of one metre….

Non-SI units of work include the erg, the foot-pound, the foot-poundal, the kilowatt hour, the litre-atmosphere, and the horsepower-hour. Due to work having the same physical dimension as heat, occasionally measurement units typically reserved for heat or energy content, such as therm, BTU and Calorie, are utilized as a measuring unit.

Work and energy

Work is closely related to energy. The law of conservation of energy states that the change in total internal energy of a system equals the added heat, minus the work performed by the system (see the first law of thermodynamics),

dE = \delta Q – \delta W,

where the symbol \delta indicates that heat (Q) and work (W) are inexact differentials.

But it gets worse. A lot worse.

The petroleum industry employs thousands of reservoir engineers around the world to calculate reserves. These results are then aggregated to come up with an estimate of total world oil reserves. This is what Hill calls the “quantity approach.”

But Hill claims he has come up with a method to calculate world oil reserves which is not only much simpler, but also much more accurate than the quantity approach. Here is what Hill claims:

The methodology employed by the study is termed “exergy” analysis… [It entails] the construction of a mathematical model that can predict the status of the world’s petroleum reserve with a much smaller margin of error than can be provided by the quantity approach.

The smaller error results from a much more compact model than what is produced by the quantity approach. To be implemented, the quantity approach requires the evaluation of thousands of values; usually many of them are not precisely known. The energy approach (the ETP model,Total Production Energy) requires only three… To generate values the model requires the mass of crude removed over a period of time, the mass of water removed, and the temperature of the reservoir.

For a petroleum engineer like myself who spent a lifetime in the business, Hill’s claim is tantamount to the claims of the alchemists of old, swearing they could turn lead into gold.

But get your popcorn and hold on to your seat, because Hill’s claims get even more fantastic, for he goes on to tell us that

The one catagory for which we are almost 100% certain is its [crude oil’s] price history. The price of crude oil varies daily, even by the hour, but when viewed from an energy perspective its longer term value closely follows a well defined mathematical function. That mathematical function is derived from the ETP model. The price of petroleum is driven by its cost of production, and its cost of production is controlled by the energy required to produce it. This simple relationship gives a means to map the past, and future of petroleum prices. Mapped to past pricing the relationship gives an almost perfect fit. Because the model is based on First and Second Law premises future projections can be expected to perform as well as those that were applied to the past.

Do you comprehend the leap of faith it would take to believe one could take only three values — the mass of crude removed over a period of time, the mass of water removed, and the temperature of the reservoir — and from these predict the future price of crude?

► “What does this have to do with the monetary theory of value?”

Did I ever mention monetary theory? Theory of value is a completely different subject than monetary theory. The two should not be confused.

► “Today, anyone producing a product at a loss is in an unstable situation. Tight oil producers have been doing that, with frequent denunciations of ‘ponzi scheme’ from the Peak Oilers. Once the ponzi is recognized, funding will probably dry up. Those are just the facts.”

No, these are not “the facts.” They are predictions. These predictions are based on Estimated Ultimate Recoveries (EURs) and forecasts of future oil prices. There is a great deal of disagreement over these future outcomes. That, my friend, is what makes a horse race.

► “When I talk about a relocalized economy functioning with Harari’s triumvirate of nuclear family, extended family, and community, I am not claiming that such an environment is ‘better’ than global capitalism.”

But would you agree that each society has a certain set of prevailing values, and these prevaiing values differ from one society to another?

• Don Stewart says:

Glenn Stehle
This is likely to be an unproductive exchange. But I will invest a few minutes:

First, thousands of well meaning experts can labor and fail to see some of the fundamentals. I was an unwilling participant in one of the great corporate train wrecks of the 20th century, and the failure to understand the fundamentals is the way I would describe the experience. Hard work doesn’t usually overcome fundamentals failure.

Second, money makes the world go around, at the present time.

Third, people do develop values, but those values are not independent of their environment. Some neuroscientists now describe a human’s various minds as resulting from the interplay of their body and their society. If the society changes, then the minds will change. Should we revert to a nuclear family/ extended family/ community society, operating without oil, then the values will change. One of the points Harari makes is that hunter-gathers had many, many distinct social organizations. Some were quite violent, others pretty peaceful. Some were matriarchies, some patriarchies. And so forth and so on. Exactly how the community you might find yourself in after the collapse of Oil will behave is impossible to predict (so far as I can tell).

Fourth, can Hill predict the end of oil without a laborious counting of reserves by field? He discussed that somewhere. He is giving it a shot by looking at some thermodynamic fundamentals and fitting some equations which attempt to estimate the declining amount of work which we can get from a barrel of oil. And no, usable work from a barrel of oil is not the same as the energy content of a barrel of oil…despite the fact that we measure them both with the same units.

Don Stewart

• Glenn Stehle says:

Fourth, can Hill predict the end of oil without a laborious counting of reserves by field?

But if one actually takes the time to read Hill, like I did, then he claims he can predict much more than merely the end of oil. He claims he can predict:

• Total global ultimate recovery of oil, and
• The future price of oil

So let’s give this a little road test. What is Hill predicting the price of oil to be in August of this year? In December of this year?

• Don Stewart says:

Glenn Stehle
You want to go around in circles. I have long ago explained to you that once he knows the shape of the increasing cost curve for oil and the work which can be done with that oil, beyond merely producing itself, he can predict things about the income generated and draw supply and demand curves.

But, no, I don’t think he claims a crystal ball which will tell him what speculators and governments will do between now and August, which would let him speculate successfully in short term futures markets.

Don Stewart

• Glenn Stehle says:

First, thousands of well meaning experts can labor and fail to see some of the fundamentals.

But even if those thousands of reservoir engineers toiling away around the world are all proven wrong, that doesn’t make Hill right.

Second, money makes the world go around, at the present time.

Do you believe citing fatuous platitudes helps your argument?

Third, people do develop values, but those values are not independent of their environment.

Who said values are “ndependent of their environment”?

Since Hill clings to the price theory of value as if it were self-evident and beyond dispute, it seems like Hil and Harari are on very different pages.

• Don Stewart says:

Glenn Stehle
Last time I waste my time. I have previously explained that there is a big and long term view, and a small and short term view, and a middle scale and middle time frame view. Hill is focused on the middle. If you want to debate the ultimate values, then you are going to have to get a whole lot smarter.

Don Stewart

• I am afraid that there may be some validity to your concerns. In any kind of model, the “devil is in the details.” There are also an awfully lot of assumptions–for example–average values across all oil fields that don’t necessarily make sense for oil from shale formations. There is also the issue that the energy consumed in EROI analyses is generally not of the same type being extracted. Thus, we use electricity produced from natural gas or coal or hydroelectric to produce oil. Subtracting this energy from oil energy (even though people do it every day in net energy analyses–also wrong in my view) doesn’t make sense to me.

3. Tolstoy's Degenerate Grandson says:

If I were the last man standing post collapse, I would spend my final days erecting a giant tombstone and chiseling this into the stone as a dedication to mankind:

4. tony says:

Your model still lacks aggregate demand, on both sides. With insufficient demand, a monetary economy will shrink even in the best of circumstances. With sufficient demand, even a collapsing economy can maintain full employment and divide resources in a fair and productive manner.

• Glenn Stehle says:

Keynsian pump priming won’t work if you are up against limits of production and consumption imposed by natural resource limitations.

Keynes knew this. And those who followed in Keynes’ footsteps, like John Kenneth Galbraith, certainly knew this.

But the MMTers seem to have forgoten it.

5. – Chinese energy figures suggest much slower growth than advertised: http://www.resilience.org/stories/2015-04-26/chinese-energy-figures-suggest-much-slower-growth-than-advertised

“Last year China reported the slowest economic growth in 24 years, about 7.4 percent. But the true figure may actually be much lower, and the evidence is buried in electricity figures which show just 3.8 percent growth in electricity consumption.”

6. Glenn Stehle says:

@ Tolstoy

Have you seen the work of Almuth Ernsting? She is pessimistic about the prospects of renewables too, and argues that “Our only hope for a sustainable future is to return to a low-energy, low consumption, pre-1973 lifestyle.”

She takes a look at the poster children for renewables — Germany, Denmark and Norway — and concludes that, “on closer inspection, many of the ‘great renewable energy successes’ don’t look so great after all.”

https://citizenactionmonitor.wordpress.com/2014/11/20/shocker-our-only-hope-for-a-sustainable-future-is-to-return-to-a-low-energy-low-consumption-pre-1973-lifestyle/

But I take it you are even more pessimistic than she is. Your argument is that turning society’s clock back to a pre-1973 lifestyle, as she suggests, is not achievable without societal and economic collapse? I cannot refute this conclusion. I would say that, if history is any key to the future, your prediction will come true. However I would remind you of what the evolutionary biologist David Sloan Wilson said: “Confront a human group with a problem, even one that never existed in the so-called ancestral environment, and its members may well come up with a workable solution.” (David Sloan-Wilson, ‘Darwin’s Cathedral: Evolution, Religion, and the Nature of Society’)

I found it interesting that Ernsting omitted Spain from her list of ‘great renewable energy successes.’ Spain, after all, was the first country to make a big splash with a government-mandated transformation to renewables. It was notGermany, with its Energiewende, as is commonly believed.

The Universidad de Juan Carlos did a study of the consequences of the government-mandated program. Here are some of its conclusions:

***beginning of quote***
The following are key points from the study:

1. No other country has given such broad support to the construction and production of electricity through renewable sources….

2. [W]e find that for every renewable energy job that the State manages to finance….a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.

4. [T]he reality is far from what has typically been presented, and that such schemes also offer considerable employment consequences and implications for emerging from the economic crisis.

7. The study calculates that since 2000 Spain spent €571,138 to create each “green job”, including subsidies of more than €1 million per wind industry job.

8. The study calculates that the programs creating those jobs also resulted in the destruction of nearly 110,500 jobs elsewhere in the economy, or 2.2 jobs destroyed for every “green job” created.

9. Principally, the high cost of electricity affects costs of production and employment levels in metallurgy, non-metallic mining and food processing, beverage and tobacco industries.

10. Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.

12. The total over-cost…that has been incurred from 2000 to 2008 (adjusting by 4% and calculating its net present value [NPV] in 2008), amounts to 7,918.54 million Euros (appx. $10 billion USD) 13. The total subsidy spent and committed (NPV adjusted by 4%) to these three renewable sources amounts to 28,671 million euros ($36 billion USD).

14, The comprehensive electricity rate would have to be increased 31% to be able to repay the historic debt.

16. The high cost of electricity due to the green job policy tends to drive the relatively most electricity-intensive companies and industries away, seeking areas where costs are lower. The example of Acerinox is just such a case.

17. In Spain’s case, the minimum electricity prices for renewable-generated electricity, far above market prices, wasted a vast amount of capital that could have been otherwise economically allocated in other sectors.

24. Renewables consume enormous taxpayer resources. In Spain, the average annuity payable to renewables is equivalent to 4.35% of all VAT collected, 3.45% of the household income tax, or 5.6% of the corporate income tax for 2007.
https://grist.files.wordpress.com/2009/05/090327-employment-public-aid-renewable.pdf

***end of quote***

• I think dual mandates are stupid. If you goal is to make electricity, your goal should not also be to create as many jobs as possible.

As far as increasing the cost of electricity, if you take into account the inevitable rise in price or collapse in supply for oil, coal and natural gas, having a gentle price increase as you move to renewables seems far more reasonable than blind faith that fossil fuels will be available forever.

• Rodster says:

There was nothing low energy about 1973. As a teenager back then, I can tell you home electronics and automobiles required lots of energy.

• “There was nothing low energy about 1973. ”

Yeah, more like pre-1492.

• Glenn Stehle says:

Well, actualy world energy consmption has about doubled since the 1970s:

https://gailtheactuary.files.wordpress.com/2012/03/world-energy-consumption-by-source.png

As well as US energy consumption:

http://i.imgur.com/PmZlabz.jpg

• Rodster says:

It looks like LOW energy consumption was between 1835 and 1890.

• Jan Steinman says:

It looks like LOW energy consumption was between 1835 and 1890.

Except that, that was a time William Catton calls “takeover,” when a too-crowded Europe burst forth onto the Western Hemisphere.

The known world was able to double its resource base between 1492 and the period you mention.

I agree energy consumption was “lower” then, but it was by no means particularly low for humanity.

• Well let’s see. USA population increased 60% and total energy consumption increased 63% from ~1970 to today, so pretty much same energy per capita.

• Glenn Stehle says:

This is true.

I have created a graph which illustrates your point, which I am linking below.

And of course we all know that cutting per capita energy consumption is out of the question, because as H.W. Bush said just before the 1992 Earth Summit in Rio de Janeiro, in rebuttal to those lambasting some of the industrial nations, and specifically the United States, for their obscenely high consumption of the world’s finite resources, including food, water and energy: “The American way of life is not up for negotiations. Period.”

http://i.imgur.com/eT3WPRP.jpg

• Tolstoy's Degenerate Grandson says:

Spain’s disastrous attempt to replace fossil fuels with Solar Photovoltaics
http://energyskeptic.com/2013/tilting-at-windmills-spains-solar-pv/

As for turning the clock back I do not see how that is possible because we are well into the green revolution.

Because we have had cheap energy we have been able to grow enough food to sustain a 7+B population.

When the energy stops we starve.

But I have not yet arrived at the punchline.

We also grow nearly 100% of our food using petroleum based pesticides and fertilizers. And post-collapse these will not be available.

And when you pour this crap onto crops for decades you destroy your soil. Nothing grows with years of intensive organic inputs.

7+ B will require food the moment the grocery stores shut their doors. And there will be no way to produce it. There will be a mad scramble over what is left. Then starvation.

• edpell says:

Per 1973? My father lives in the same house as 1973. He drives a car that gets twice the miles per gallon today. He uses the same electric. What does the author imagine was happening in 1973?

• richard says:

I’m remined of a comment arising from new built student accomodation. In the 1970’s they arrived by train and taxi and plugged in a radio. Now they arrive in SUV’s with a trailer, unload, shower, plug in the hair dryers and trip the supply to the block.

• richard says:

Spain’s method of pricing for renewables was brain-dead, and probably resulted in doubling the cost to the taxpayer. The UK did something similar with wind energy by subsidising the KWh purchased _and_ not offsetting carbon credits, so the companies got their subsidy doubled.

7. Don Stewart says:

Dear Gail, Finite Worlders, and Glenn Stehle

If anyone is seriously interesting in understanding, conceptually, the workings of the Hill’s Group ETP model for oil, please see the graph here:

http://www.thehillsgroup.org/depletion2_020.htm

My comment: you will see the graphical illustration of the decline in work available to the general economy as the work required to produce the oil increases. The Hill’s Group turned that graph of work available into a projection of ‘ability to pay for oil’ using a model which I have not checked out in any great detail. If you believe that the work made possible by oil is a primary driver of the economy, you can quickly realize that the declining work available has tremendous significance FOR THE ECONOMY….perhaps not so much for the neurotransmitters and hormones. You are all adults and can draw your own conclusions, if you don’t like BW Hill’s affordability projections.

Also see this link and particularly note the dialog between BW Hill and the commenter:

http://peakoil.com/forums/the-etp-model-q-a-t70563-120.html

‘godg3 said:

I think you meant: That is, every time the work to extract a barrel of petroleum goes up 1 BTU it takes almost 5 more BTU from the energy content of the petroleum to accomplish it.

BW Hill responds:
You are 100% correct.

I’ve tried for months to convince people that there is difference between energy, and work with such limited success that I finally gave up on it.

Thank you
Thank you
Thank you!!!!!!!’

This is the Seneca Cliff implication of the fact that it takes the work done by oil to produce barrels of oil and oil products such as gasoline. You are free, of course, to claim that the imminent disappearance of gasoline is of no importance.

Don Stewart

• edpell says:

Don, of course, a heat engine is required to convert energy to work. It has a certain efficiency that depends on the temperature difference between the hot side and the cold side. For a car about 25%, for a coal fired electric plant 30%. The other 75% to 70% is waste heat.

• Jan Steinman says:

For a car about 25%, for a coal fired electric plant 30%.

Large diesel engines can slightly exceed 50%. Even small ones can achieve 40%.

• richard says:

Just skimming through the linked comments on peakoil.com, reference is made to the “huge” amount of energy needed to heat crude oil in the refining process. I’ve some experience of “moving” heavy fuel oil prior to burning, so that helps makes some sense of the downstream processes.
But your analogy of combustion engine efficiency seems a close approximation.

• Don Stewart says:

Richard and Jan
I’m not sure how Hill arrives at the 20 percent. Based on some question I asked him on a previous occasion here on Gail’s blog, I think he is referring to a total process, which would include things such as the energy embedded in the diesel engine which burns the fuel. I think he also includes the energy embedded in the pipeline which takes the crude oil to the refinery, etc. From my dim understanding of how he estimates things, I would surmise that he is using statistical methods rather than trying to count everything.

Don Stewart

• richard says:

I recall seeing a flow diagram left-to-right with oil, coal, solar on the LHS – broader for greater flows and outputs such as propulsion as a large number of narrow outputs on the right hand side. I *think* what is suggsted here is what looked like a whirlpool in the middle with not much coming out as a final product.
IF … crude oil at the wellhead has ERoEI of 10 and the refinery and production process has a low efficiency, does that equate to an ERoEI of 2 for the fuel going into a car or truck?
I wish I’d kept a link to that diagram. It might have explained a lot.

• Don Stewart says:

shortonoil on Wed, 11th Feb 2015 4:09 pm

Dear Richard and Jan

Here is one of the responses BW Hill gave to a question:

Short, can you provide detail on the processing number? Seems way high.

Processing…….2,053,800

That number came from a 2010 EIA published report. Who actually did the study I don’t known (probably U.T. at Austin). Their determination was that it took 16,300 BTU/$of finished product, which was increasing by 300 BTU/$ per decade. We calculated the 2012 weighted wholesale price of petroleum products, and came up with an average of $3.03$/gal. We used 3.00/gal * 16,300* 42 to get 2,053,800 BTU/barrel. This value, along with others, like the price correlation was used to test the model. The output of the Etp Model for 2012 is a little different: Extraction……..609,000 BTU/barrel Processing……2,101,848 Distribution……267,330 Total………….2,978,178 BTU/barrel or a difference of 1.3%, which is well within the 4.5% margin of error of our study. The Etp Model, being a thermodynamic analysis, should be expected to produce somewhat different results than a strict empirical study. The empirical studies are, however, important for model verification. We are lucky that organization like the EIA has been able to supply us with many good studies to test against. The EIA, and U. Texas has certainly been worth the tax payers dollars that have been invested into them. Back to me. One of the many things I am unclear about on the model is the extent to which the model predicts micro-factors such as the extraction, processing, and distribution cost in BTU/ barrel, and the extent to which it also depends on things such as ‘the BTU’s that a dollar can buy’. The first is looking at, I suppose, pretty narrow boundaries. That is, it might include corporate overheads for those companies engaged in extraction, but it probably doesn’t include anything for maintenance of the White House lawn. When we consider the second, BTU’s per dollar, we do have some cost in there for maintenance of the White House lawn…because the numbers start at the top of the economy rather than the bottom. When Hill describes how it is not practical, and is misleading, to start with reservoir by reservoir analysis, he seems to me to be starting from the top. So it seems to me that his model and its components are both starting at the top and also capable of predicting components in some detail. I wish I was smart enough to sit on the floor with a screwdriver and take the model apart to see how it is put together. There are practical implications of a continuously increasing BTU/ barrel cost of producing oil. As Hill points out (based on his available work analysis), an increased cost of 1 BTU requires a 5 BTU increase in production to stay even in terms of the non-oil economy. The second practical implication is a little fuzzier in my mind, but is, I think, important. Consider the East Texas Field or Tulsa. They were built with wooden derricks. The workers were fed with agriculture which used very little oil. But the evolution of the economy has given us a production system in which oil is ubiquitous. I think you and I would probably also think that substituting away from the oil component is going to be very difficult or impossible. Therefore, starting at the top, some people now show graphs that the ‘productivity of oil’ is approaching zero…much as the productivity of debt is approaching zero. In other words, using more oil and more debt are not yielding real returns. And the dim prospect of maintaining our society as the work we can extract from oil declines, and the productivity of debt continues to decline, and corporations are on track to cannibalize themselves in 2015 with a trillion dollars of share buy-backs. Don Stewart • richard says: Not the diagram I recalled, (Sankey diagram for the UK) but I found a couple of links, one on how to make the diagrams … http://4.bp.blogspot.com/-WbeA8d6_ELA/UkB4cpvQPiI/AAAAAAAAAKQ/xyf6-gDpRas/s1600/flow+chart+2012.png http://ukdataexplorer.blogspot.co.uk/2013/09/sankey-diagrams.html It does appear that some fifty percent of the energy of crude oil is gone by the time it gets into your tank. 8. There is your silly little Seneca Cliff vs. Plateau home edition presentation available from now on thanks to WorldofHanuman wet labs science park ltd. : 1. Go to your bathroom with bathtub 2. Slowly open the water spigot (preferably not the flexible showerhead or if so point it down keep stable) 3. Let for few seconds the water run wet/reach slowly cca half or 2/3 length of the bathtub 4. Close the spigot abruptly, watch and time the water regress into drainage 5. Repeat few times in sequence if the effect is not apparent for the first run = the magic moment occurs between phase 3-4 as the maximum water level reached SEEMS to STAY THERE for several seconds AFTER you shut down the water supply while it is already draining away. And from certain point the drainage speed accelerates.. then there is nothing left.. 9. Carl says: I am particularly, hesitant to believe any definite claims on the future. I have been bitten many a time to listen to one particular band wagon. However I listen carefully when a clear argument with data is presented. My question is : “Knowing that there is a probability that there is a collapse, what is it that you do to protect your loved ones from the hypothesis Dr Tverberg is proposing. ?” • Tolstoy's Degenerate Grandson says: Imagine a world without energy other than what can be generated from burning trees. Civilization collapsed. The global economy a pile of ashes. Starvation, disease, violence rampant. Think of the worst situation on earth. Rwanda during the Hutu Tutsi wars. Somalia or Ethiopia during a drought. Bosnia during the civil war. America during the civil war. WW1 and 2. The failed states of Iraq and Libya. Now multiply that by 1000 (because those places all had energy available, some degree of medical care and aid arriving) then imagine this happening on every corner of the planet. Yes I know. This is unimaginable. But this is what is coming. When the oil stops, the grocery stores go empty, and the nightmare begins. The modern world is about to meet the primitive world. And other than those living subsistence lifestyles in remote places, not a single one of us is even remotely ready for this. How do you prepare for that? • kulm says: nuclear reactors where uranium will be available, like australia. period. • Tolstoy's Degenerate Grandson says: Yes I am sure the nuclear reactors will be functioning when the global economy collapses. • Kulm says: Yes they will function for quite a long time. • Tolstoy's Degenerate Grandson says: I wonder where you get the spare parts required to operate a nuclear reactor when the global economy no longer exists…. • Jan Steinman says: I wonder where you get the spare parts required to operate a nuclear reactor when the global economy no longer exists… Bubble gum and baling wire! Oh, wait… y’mean, there won’t be any of those, either? • Also electricity from outside, to restart the operation after an outage. • kesar says: Question everyone here asks her/him-self on a daily basis. I am designing and building a semi-autonomous house. What’s your plan, if I can ask? • pintada says: In all honesty – and this is assuming you are asking about a house literally – if the design is worth its salt, the location will change everything. The design I used for my place would be useless anywhere else. I would never been able to design it had I not known the area intimately. • kesar says: I agree. Location matters a lot. I am therefore in the process of looking for the right place and I recently (hopefully) have found one – still work in progress. • Jan Steinman says: what is it that you do to protect your loved ones Join with others of like mind and develop self-sufficiency skills. Yea, someone may come and take it from you. Yea, it might not be “enough.” Yea, a boiling cloud of radioactivity could still wipe you out. But you’ll still have the feeling that at least you’re trying to do something! Action is the antidote to fear. Or just sit back and wait for the end to come. • Tolstoy's Degenerate Grandson says: That makes sense. • Jan Steinman says: That makes sense. Wow. The Duke of Doom and the Perennial Pollyanna agree with each other! • Tolstoy's Degenerate Grandson says: I remain doom and gloom and believe this is almost certainly an extinction event. But for most people it is best not to allow this thought to fester because it would lead to deep depression and perhaps suicide. Better a shovel and a hoe for therapy than a mouthful of xanax each day. And it is nice to be able to pull a meal from your garden. • smologo says: TDG agrees with you because because your post is honest. Your actions are based on the feeling they create. Now me I have a truly righteous mission. Windmills are evil. I smite them. Chicks dig it the most. What more could you ask for? • Jan Steinman says: Now me I have a truly righteous mission. Windmills are evil. I smite them. Yea, perhaps all of us here are “tilting at windmills.” Chicks dig it the most. My chicks mostly dig earthworms. • zencat#3 says: Well first you get some beans and bullets. Then you realize your continued existence is not worth the price of using the bullets. Then you start too look for a community or make one. Then you realize that most people are completely delusional. Then you start to really enjoy each and every day and do the best you can to take actions that look to the future. That involves deciding what is important to you from a both a perspective of the possibility of collapse and also the possibility of non collapse. For me that is being the best caretaker of the land I can be. Love comes with the possibility of pain. A drunk driver can hit you and your family Thousands just died from a earthquake in Nepal. Enjoy your time. • garand555 says: Grow your beans. Gardening is not a skill mastered in 1 year. • pintada says: Beans sure, but pickled beets is where its really at. • Jan Steinman says: pickled beets is where its really at. And when you add your own garlic, perl onions, and baby carrots, and pickle them in your own pear cider vinegar, you won’t believe the “artisinal boutique” price you can charge for them! I mean, I can eat for a month on what I get from a dozen jars in the local market! And when the tourists go away, I’ll still have pickled beets, but to eat, this time. “The shoemaker’s children run around barefood.” I can’t afford to eat the food I produce in today’s market. But at least I’ll have the food production systems in place when the market changes. • garand555 says: I’ve never made vinegar. You fundamentally are making pear (or plum, or apple, or peach, because I have all of those kinds of trees,) wine, then either add a culture to it, or wait longer and let it turn naturally, right? Do you age it? • Jan Steinman says: Yea, make alcohol, then inoculate it with bugs that eat alcohol and excrete acetic acid. You can harvest these bugs (“mother of vinegar”) from other vinegar that has sat around a while. They form a sort of stringy, slimy mass in the vinegar. • garand555 says: A bright note: I already have strawberries that are just about ripe. I need to check them today as a few are possibly there. Not many yet, so they won’t even make it into the house. • Jan Steinman says: ” I already have strawberries that are just about ripe.” Woa, what growing zone are YOU in? Ours are about a month off. • garand555 says: 7B/8A. It has been a particularly warm late winter/early spring. Everything blossomed early and I thought that I would be losing my pears, peaches and plums due to an April frost for sure. Nope! I’ve gotta knock some off in the next week or two so that the branches don’t break when they are close to being ripe. • Jarvis says: Carl, watch the British series “Tudor Monastery Farm” on YouTube. Those living in the right area with the right skills might get this life style. • kulm says: until the Lord’s mercs arrive with the machine guns. • Artleads says: Since sustenance comes from land rather than cement or asphalt, I’d vigorously oppose new real estate development that covers up the land. I would continue to grow food, even if you’re very bad at it. (You’ll be more productive if, unlike me, you spend a lot of time on it and follow instructions.) If your garden is an ugly mess, it will repel looters like garlic spray repels bugs. 10. Thomas Ballentine says: I feel almost certain that if you ask Charlie Hall, he will tell you that the idea of EROEI was developed by his major professor , Dr. Howard T. Odom, who was already doing these analyses at the University of Florida in the early 1970s. The very first national conference about Net Energy was held at Stanford University in 1974 (?) due to Odom’s raising this issue with respect to western Colorado’s oil shale development (which collapsed a year of so later when Regan cut the massive research efforts on this boondoggle). 11. Kulm says: Times have changed. None of the long-term trends, historical precedences, etc apply today because today’s information tech has evolved in a level ancient thinkers could never have imagined. It is like Noah’s Ark. Today’s well-informed , well-connected and well-provisioned, and a few lucky souls who have the honor of guarding their lives and property, will move into a new stage of existence, leaving about 99% of the rest of the 7 billion people behind. Like passenger pigeons, no matter how many the number of the left behinds are, they are doomed like the Congolese before the Belgian machine guns. • Tolstoy's Degenerate Grandson says: Let’s say I was a former special forces commander. Larry Ellison hires me to run security on his island which he has stocked with everything needed to live well for he rest of his days — fine wines, caviar, stockpiles of everything under the sun, tools, cattle, sheep, pigs, chickens etc… Here’s how I see day one working out. Hey Larry – yes Degenerate. Me and my crew have decided that we don’t need you and that we are going to put you in your World Cup sailing boat and send you on your way. But I am the boss Degenerate. But I have the guns and the soldiers Larry. So have a nice trip. Oh, and leave the key to the champagne cellar would you. • ilumipotti says: You just make undergoing loyalty conditioning part of the contract where techniques are used to change the mind so that disloyalty is impossible. Leverage heavy off of technology also. These are simple problems easily solved by money. Humans are not a rare commodity nor is destructive hardware. • Glenn Stehle says: That sounds awful lot like John B. Watson. Of course what you descirbe is just one more utopian vision of the elites, as this video documents: ‘Human Resources: Social Engineering in the 20th Century’ • Tolstoy's Degenerate Grandson says: Yes, he could profile his minders and get very thick headed, loyal soldiers working for him on his island. • Glenn Stehle says: Gosh! That sounds like something right straight out of ‘The Prince.’ So are you telling us those private mercenaries hired by the big corporations, and which they think are the best thing since sliced bread, might not be such a good idea after all? • tmsr says: Yeah, let’s not malign The Prince. Machiavelli said there are two ways to survive as prince first his preferred route be good to your subjects and second be bad very bad to your subjects. Just do not be a little bad then they hate you but do not fear you and will kill you. • kulm says: The moment you do that, someone appears from the side and silences you. These kind of people never trusts Anyone and have double and triple security teams playing against one Another. not to mention mind control and loyalty conditioning. They did not reach where they are by trusting someone. You simply do not know them. • Tolstoy's Degenerate Grandson says: Really? Do you think George Soros or Bill Gates has experience of such things? Tony Soprano yes. An average billionaire, no. And that is why guys like Tony will run the show – if there is a show to be run. • kulm says: The behind the scenes people actually derive their power by the existence of the big boss. They can never become the big boss, and for skme reason they rarely reproduce. • edpell says: TDG, they hire people who do think like this. IBM shareholders meeting 2004 security consultant looking like La Femme Nikita is directing the local police to be sure to search under the wheelchairs of the handicapped retirees before allowing them entry. • Tolstoy's Degenerate Grandson says: So if I am the security detail of a billionaire post collapse why would I not just off him? What does he have to offer me? There will be no billionaires post collapse because when there is no energy there is no wealth. His stocks, bonds, properties, gold, silver etc… will be worthless. Food will be all that matters. And if George Soros has a cave stocked with food, and I am running his private army, sorry but George is out the door. Because he is useless to me. He has nothing but the food. There will be no 911 for George to call when I kick him in the ass down the stairs. When this hits we are talking total chaos – the ultra wealthy will be some of the worst prepared for that outcome. • Glenn Stehle says: @ Tolstoy That sounds pretty much like what happened when the Roman Empire collapsed. An almost purely merit society followed, and all those hereditary claims to privilege became worthless. As William Manchester writes in ‘A World LIt Only by Fire’: “Because the first medieval rulers had been babarians, most of what followed derived from their customs. Chieftans like Ermanaric, Alaric, Attila, and Clovis rose as successful battlefield leaders whose fighting skills promised still more triumphs to come… Lesser tribesmen were grateful to him for the spoils of victory… [T[he chieftains had been chosen for merit, and early kings wore crowns only ad vitam aut culpam — for life or until removed for fault” • Kulm says: But eventually the elite Roman families who produced the popes had the last laugh. 12. Gary says: I’m wondering if “wealth production” could be compared to honey production, and if (instead of the energy patterns of fish) wealth production could be directly corroborated with the energy patterns of civilization as a super-organism… not unlike a hive of bees. Too simple a model? http://collapseofindustrialcivilization.com/tag/tim-garrett/ 13. energymonk says: Great post! Very well explanation. But I would like to suggest to you a book called: “The World Energy is Flat”, http://www.amazon.es/The-Energy-World-Flat-Opportunities/dp/1118868005 The theory in that book is completely different. Fundamentally, the energy nowadays is at the same time as broadband Internet in 2000, when telecoms started to invest millions in broadband…and nowadays Internet is quite cheap in the Western. • zencat#3 says: “Fundamentally, the energy nowadays is at the same time as broadband Internet in 2000, when telecoms started to invest millions in broadband…and nowadays Internet is quite cheap in the Western.” Fundamentally I find any comparison of a virtual infinite resource to a finite physical one to be (ahem) flawed. 14. Daniel Hood says: #DimishingReturns Xenophobic attacks on “foreigners” in South Africa “It’s been a rough week for South African businesses across the continent. Some have become the target of protests and boycotts in the aftermath of the anti-foreigner violence, while others have suspended their operations and evacuated staff for fear of retaliatory attacks. Thousands of African migrants, meanwhile, are fleeing the South African attacks and heading home to Zimbabwe, Mozambique and Malawi.” http://www.theglobeandmail.com/report-on-business/international-business/african-and-mideast-business/fallout-from-attacks-on-foreigners-damaging-south-african-businesses/article24093294/ • Daniel Hood says: #DiminishingReturns #Entropy Anyone noticing ominous signs/patterns here? “The same happened in 2008 (financial crisis) and now 2015 (debt/energy crisis) the same thing’s happening again. “This is not the first time that South Africa and their youth have gone after international communities,” Senator Nkechi Nwogu was quoted by The Premium Times as saying. The same thing happened in 2008, and what happened to the perpetrators when it happened?” he asked, adding that Nigeria should ensure that “the South African government pays dearly for it”. “The Nigerian senate has urged the country’s federal government to recall its high commissioner from South Africa and ask the International Criminal Court to indict King Goodwill Zwelithini for inciting xenophobic attacks, the Independent Foreign Service reports.” http://www.iol.co.za/ios/news/xenophobic-attacks-charge-the-king-1.1850389#.VTuwAZM_x6I • Daniel Hood says: Richard Heinberg nails it “Law of Diminishing Returns” • Tolstoy's Degenerate Grandson says: Heinberg really has lost the plot when it comes to solutions. Renewables – really Richard? Who’s funding the Post Carbon Institute? • Daniel Hood says: It actually makes perfect sense when you think deeply about it? The alternative is to continue burning fossil fuels like there’s no tomorrow, pump all that CO2 into the atmosphere in the knowledge it’s rapidly running out across the Western hemisphere particularly, then if and when it does, simply sit there and die far quicker than we would without renewables because the collapse would certainly be more chaotic than if we had no renewables? We know that we’ve reached peak cheap conventional oil, 2006 and that production has been declining by around 6% pa. We know that “Fracking is a temporary stop-gap not an energy panacea” Peter Thiel. Therefore, renewables allows us to “manage the decline” over the last century to populations levels that are more manageable. Also by the latter half of the 21st century, the impacts of climate change will likely be significant. Even if we stop today all use of FFs, CO2 momentum will continue to do its thing. I don’t know about you but I find it easier to listen to the scientists rather than the GOP, or the anti-GMO extremists on the Left etc. To my mind, climate change is a very real phenomena and we see this clearly in California where overpopulation and overconsumption HAS already run into Calis worst drought for 1,200 years according to NASA and it’s going to get worse, much worse in a matter of month. As for demographics, short/medium/long term, according to Dr Hans Rosling the world is already on target to hit 9/10 billion by 2050, unless we suffer major nuclear war or some cataclysm. He’s shown how the West will no longer be a developed outlier as other nations rapidly develop and catch up. Western civilization will therefore form the “base” of the modern world. Africa’s population is set to explode, momentum will therefore take us to 9/10 billion by 2050 when you look at today’s birth rates, therefore the majority of the 2.5 billion over the next 30 years will take place in Africa. In Europe pop growth is coming to an end, in China by 2050 beyond they will simply lose “half” their population given fertilty rates are circa 1.3 (1978: 1 child policy) so 1.4 billion reduced down to 700 million! 700 million people will simply vanish off the face of the earth. Japan more people dying than being born today, same for Italy, Spain, Greece, et al and soon many more developed nations facing diminshing returns. This also means that post 2050 we’re going to see massive global “ageing”, meaning huge deflationary forces on the horizon. Old people tend to be less active, they consume less, require fewer resources etc. Most will probably be sent to nursing homes because their kids will struggle to work, raise kids (if they have any) and look after their old folks. Think of the size of the problem in China, Japan in a few more decades?! So to conclude, the world is already seeing first tangible signs of diminishing returns across food, energy, water security, tensions, trade-offs, interdependencies, interrelations in the wider context of technology, the economy, environmental change anyway, so renewables is simply one of many “peaceful” methods designed to manage the bursting/decline of our 250+ debt/carbon bubble. One thing I do know is by 2100 there will not be anything like the population levels we have today circa 7 billion without renewables. Outlier areas of interest to watch are Artifical Intelligence, genetics, religious extremism, demographics etc. Artificial Intel is advancing so fast it’s frightening. Google just recently paid400 million for Deep Mind a firm of geeks in London. Already they’re RNN algos are doing insane things thought impossible, too complex not so long ago. More dangerous than nukes!

• The drought in the west and cold winter in the east is due to “The Blob”, which is probably part of the Pacific Multidecadal Cycle -> a cyclical weather event that likely last occurred during the Dustbowl, which coincidentally overlapped with the Great Depression. That is pretty amazing, for an economic cycle to come around to major decline right before the weather does the same thing.

Hans Roslings’ predictions are based on the developing world continuing to develop. If everything falls apart, fertility will rise, infant mortality will rise, life expectancy fall, and all that progress will disappear.

I don’t think most people here expect things to hold together through 2050, but we could all be pleasantly surprised.

AI may not have much further to grow, since we’re getting to the point where more die-shrinks or further advances in quantum entanglement will approach $1 trillion investment in the next foundry. The world economy is not big enough for it to be worth it for one company to spend$1 trillion, let alone several.

Who knows, technology may put off the day of reckoning once again, but I think it is better to expect otherwise and be nicely surprised than to expect technology to save us and be shocked and disappointed.

• Tolstoy's Degenerate Grandson says:

If we covered the Sahara and Gobi deserts with solar panels that would hasten climate change.

Because the energy intensive production of solar panels involves enormous amounts of filthy coal.

Effectively when producing a solar panel you burn up 20 years of energy in a short period then release the energy over the 20 year life of the panel and other gear. A solar powered system is effectively a battery.

Now if only solar panels and windmills grew on trees.

Can we stop speaking of renewables as renewables – they are nothing of the sort.

The MSM pounds this drum primarily because it distracts the sheeple from the reality of the end of civilization due to the end of cheap to extract oil.

That’s why this does not appear in any MSM:

Renewable energy ‘simply won’t work’: Top Google engineers

Two highly qualified Google engineers who have spent years studying and trying to improve renewable energy technology have stated quite bluntly that whatever the future holds, it is not a renewables-powered civilisation: such a thing is impossible.

Both men are Stanford PhDs, Ross Koningstein having trained in aerospace engineering and David Fork in applied physics. These aren’t guys who fiddle about with websites or data analytics or “technology” of that sort: they are real engineers who understand difficult maths and physics, and top-bracket even among that distinguished company. The duo were employed at Google on the RE<C project, which sought to enhance renewable technology to the point where it could produce energy more cheaply than coal.

Even if one were to electrify all of transport, industry, heating and so on, so much renewable generation and balancing/storage equipment would be needed to power it that astronomical new requirements for steel, concrete, copper, glass, carbon fibre, neodymium, shipping and haulage etc etc would appear.

All these things are made using mammoth amounts of energy: far from achieving massive energy savings, which most plans for a renewables future rely on implicitly, we would wind up needing far more energy, which would mean even more vast renewables farms – and even more materials and energy to make and maintain them and so on. The scale of the building would be like nothing ever attempted by the human race.

In reality, well before any such stage was reached, energy would become horrifyingly expensive – which means that everything would become horrifyingly expensive (even the present well-under-one-per-cent renewables level in the UK has pushed up utility bills very considerably).

• Without batteries, in appropriate locations, solar can return 7 to 10 times the energy invested over 25 years. It is the batteries and storage system that constantly needs replacement that reduces efficiency towards break even.

The big changes that society would need to accept for renewables to be truly useful:
1. Use power when it is available: alter rates based on current solar and wind power production.
2. 90% reduction in per-person consumption (at least, based on North American consumption levels.)
3. Meaning, no more commuting an hour each way alone in a 2-ton vehicle

• Tolstoy's Degenerate Grandson says:

7-10 x eh…. I guess the Germans and the Spanish prefer not to make money?

The German Solar Disaster: 21 Billion Euros Burned
http://www.thegwpf.com/german-solar-disaster-21-billion-euros-burned/

Spain’s disastrous attempt to replace fossil fuels with Solar Photovoltaics
http://energyskeptic.com/2013/tilting-at-windmills-spains-solar-pv/

Yields on some sovereign debts are negative these days…. Perhaps the money men are not aware of the fact that there are easy pickings at 7-10x?

And the coupe de grace on solar. If it made any sense whatsoever don’t you think there would be massive amounts of investment pouring in and it would by now be something more than a curiousity?

Dream on….

• richard says:

” Already they’re RNN algos are doing insane things thought impossible, too complex not so long ago. More dangerous than nukes!”

• Kulm says:

Except most of the 9 – 10 billion are not economically relevant.

now 50% of world population owns less than 1% of the world’s wealth.

Even if they disappear without a trace the world’s economy will function as usual.

• Jan Steinman says:

50% of world population owns less than 1% of the world’s wealth. Even if they disappear without a trace the world’s economy will function as usual.

Perhaps I’m missing something important here, but that makes no sense to me at all.

“Ownership” of wealth does not drive economic activity! In fact, ownership can be seen as a static (or even parasitic) activity, although economists may insist that investment is what drives economic activity.

However, it seems to me that buying food, paying for housing, obtaining transportation, purchasing “consumer” items — these are what drive the economy.

If the 50% “disappeared without a trace,” the 1% would look pretty silly, trying to find someone to cook their food and clean their toilets. Their yachts would cease to function, their airplanes would drop out of the sky, and their cars would run out of gas. Even their gated homes would be inaccessible, as the “non-ownership society” that maintains the electrical grid would no longer be able to supply their motorized gates with power.

Or maybe you including a lot more people in the upper 50% than I do.

• Not too many billionaires directly employing people for under $10 a day right in their homes. The upper 50% is still 3.5 billion people. In America, there are about 160 million workers out of 320 million people. Of course, that includes children and retirees as well. • Stilgar Wilcox says: Heinberg always does a great job of explaining the energy predicament, then finishes by frosting the BAU cake with transitional solutions. It’s a cop out to satisfy the American social structure of always remaining POSITIVE for fear of being labeled NEGATIVE. He’s a writer that knows the social pressures of his notoriety and caves to them consistently. • Daniel Hood says: @ Matthew Krajcik So to summerize you’re rebutting on the basis that… 1. Man made climate change is likely not real according to global scientific wisdom? or Cali is down to some “seasonal cyclical variant” which is really unlucky given it’s coinciding with current economic issues even though man made climate change may or may not be real? 2. Dr. Hans Rosling is likely wrong with his research/analysis? African populations wont double+ over the next few decades. 3. AI “wont grow” the super geek PhD scientists will give up, likely wont make any break throughs because? (Not sure I’m able to follow your logic on this point) I’ll help you out on advances being made right now https://www.youtube.com/watch?v=V1eYniJ0Rnk 4. “The “world economy” 7.3 billion people will simply fade away over the next 30 years because? How will this work, given survival is the spirit is the soul and fear is a great motivator for action? I think it’s clear to everyone we’re facing a massive population crash in the latter half of the 21st century, simply maths tells us this. Low birth rates are correlated to wealth, education, health, urbanization etc. but inversely correlated to poverty, lack of education, poor health and religion. I suspect some people overestimate the imminent “global” collapse thesis and our capabilities to try to deal, delay, offset in the short term. The medium to long term i.e. post 2050 all bets are off. The danger that some make is to oversimplify complex systems in their minds. It’s a mistake I used to make in 2008, when I thought the world was about to end imminently taking down “the whole world” with it. Over time, when I started to leave my world and travel the globe, I was willing to admit I was wrong and there was perhaps more I didn’t really understand than I thought I did at the time. Don’t underestmate the will, power of innovation & efficiencies “in the short term” i.e. before 2050 to delay, offset the day of reckoning. I do agree though, it’s highly likely there wont be 7 billion people on earth by the end of the century. Fascinating stuff talking through it! • 1. Climate change (which is newspeak for Anthropogenic Climate Change, and does not take into account any non-man made impacts) is not the main cause of the drought, a natural weather cycle is. 2. Hans Rosling is extrapolating the current trend. If Business As Usual does not continue through 2050, his projections will be incorrect. 3. AI will still develop, for a while. Processors are probably not going to get much more powerful or efficient, however, so it will have to be done with only slightly better than current technology. Barring some radical new energy source and a return to massive economic growth. 4. Do you read articles on this site at all? Unless something is developed to replace coal and oil, the economy will decline because there will be substantially less energy to power it. If 50 to 90 percent of the population have to leave the cities and spend 60 hours per week subsistence farming, they won’t have the money to buy things, and the scales of economy will retract quickly. • Daniel Hood says: @ Stilgar Wilcox agreed, personally I believe renewables will be effective in stopping imminent physical collapse of the “entire world” as if other nations can’t survive without America etc, they will buy us time up until 2050, but in the end as we start to see literal population crashes, it will become clear that renewables are more of a stop-gap helping us to better manage the decline of civilization given 99.9% of civilizations before us have gone the way of the dodo. If Elon Musk can vacuum pack us off to Mars within the next 20-30 years then we may stand a chance, even if it’s a tiny one. The alternative is to give up and die much faster. • Tolstoy's Degenerate Grandson says: So you disagree with the Google engineers. Fine. But you will need to explain how they have it wrong – specifically: Even if one were to electrify all of transport, industry, heating and so on, so much renewable generation and balancing/storage equipment would be needed to power it that astronomical new requirements for steel, concrete, copper, glass, carbon fibre, neodymium, shipping and haulage etc etc would appear. All these things are made using mammoth amounts of energy: far from achieving massive energy savings, which most plans for a renewables future rely on implicitly, we would wind up needing far more energy, which would mean even more vast renewables farms – and even more materials and energy to make and maintain them and so on. The scale of the building would be like nothing ever attempted by the human race. Otherwise, I’d categorize your comments as wishful thinking • “So you disagree with the Google engineers.” 1. Their project was to make renewables cheaper than coal. 2. With dispatchability 3. While continuing economic growth If the goal is instead to simply have access to electricity 20 years out, with minimum storage for spikes and valleys, while reducing consumption 90 percent, the goal is far more realistic. On the other hand, panels and batteries could become significantly better before the system starts to fall apart. • Tolstoy's Degenerate Grandson says: Solar has virtually no nett energy output. What goes into making them is pretty much what you get out, assuming they last the prescribed number of years [As an aside I had an engineer at my place on the weekend and he has been in the solar business for decades. His comment on batteries ‘whatever the manufacturer says in terms of life span is bullshit. I have seen some last five and some last 15″ — I am still considering because I don’t know of any other batter packs might last 15 years] Yet people still believe they will save the day. This is so beyond ridiculous. • It is the batteries that basically make solar useless. 9.4:1 without, possible net positive with: http://ourfiniteworld.com/2014/11/18/eight-pitfalls-in-evaluating-green-energy-solutions/ Using solar thermal with hot sand as the storage medium to allow dispatchability may turn out to be a pretty efficient, cost effective and durable solution. • Tolstoy's Degenerate Grandson says: Storing heat in sand and running the world on that. Um. I don’t see that working out very well. • Daniel Hood says: @ Tolstoy’s Degenerate Grandson “So you disagree with the Google engineers. Fine.” I have no idea what you mean by this statement, furthermore I work alongside former google engineers so please clarify and we can bring them in to the debate. Google owns DeepMind, they purchased for$400M last year, so are you referring to renewables or AI? Confused with your opening statement.

Also, please don’t take this the wrong way but when you debate others that have different worldviews, points of view, you should at least try to respect that whilst seeking to understand different perspectives, asking for clarfications, deeper discussions, it’s not a tribal “battle” where you feel the need to make short, sharp statements that could be construed as emotionally charged on the negative side etc. “So you disagree with the Google engineers. Fine.” “Wishful thinking” etc. You’re only coming across as hostile, defensive which is quite off putting.

Finally, you state how resource intensive renewables are etc. and you’re correct to to state that, however it’s also accurate to state they’re not nearly as energy intensive as fossil fuels now that we’ve picked all the low hanging fruit in the Western hemisphere. We all know we’ve reached conventional peak cheap oil, and we know fracking is a super temporary stop-gap not an energy panacea as we’ve said many times on this blog.

I don’t understand exactly what points you’re trying to argue, you’re not clear in your statements.

So if we’ve reached peak cheap conventional energy in the Western hemipshere
If fracking is a temp stop-gap
If we’re reaching peak debt etc.
If impacts of climate change and the tensions, trade-offs, etc. between food, energy, water security are accelerating.

What’s the alternative if it isn’t some mix of renewables?

• Tolstoy's Degenerate Grandson says:

Surely it is very obvious what I mean by that.

Google tasked these experts with taking renewable energy forward. They invested (wasted) nearly one billion dollars in this effort.

The engineers have stated unequivocally that renewable energy is basically a big joke.

Specifically they have said this:

Even if one were to electrify all of transport, industry, heating and so on, so much renewable generation and balancing/storage equipment would be needed to power it that astronomical new requirements for steel, concrete, copper, glass, carbon fibre, neodymium, shipping and haulage etc etc would appear.

All these things are made using mammoth amounts of energy: far from achieving massive energy savings, which most plans for a renewables future rely on implicitly, we would wind up needing far more energy, which would mean even more vast renewables farms – and even more materials and energy to make and maintain them and so on. The scale of the building would be like nothing ever attempted by the human race.

So pray tell how we can power the world on renewable energy when the amount of energy and materials required to ramp up would bankrupt the world both on a financial and a resource level.

See the graph:

There are reasons why solar and wind are 0.17% – they are too expensive, they are intermittent, they require fossil fuels to make them. And you are hanging your hat on this failed dream? Really?

Sorry to say but renewable energy is a complete and utter joke and Icould care less if you are a rocket scientist, your argument is shot to hell and makes not a bit of sense.

If you want to disagree with me then you need to address the facts. And you have not done so.

You have given me hopium and wishful thinking. I don’t do either.

• Daniel Hood says:

So again, what points are your trying to argue?

The reason I ask is had you read carefully with intent of trying to “comprehend” rationally, rather than “respond” emotionally which it seems you’re intent on doing, you would have noticed that I’ve stated many times over in discussions that “renewables are an extender designed to manage the decline of civilization”. Renewables will likely not be facilitating continued total population growth post 2050. Personally I don’t believe we will see an imminent population crash of 7.3 billion people “unless” there’s some huge war or cataclysm, or unless we “completely” abandon renewables, then it’s almost guaranteed. When we talk about renewables we mean, hydroelectric, wind, wave, solar, biomass etc, and the manufacture, distribution and sale of alternative fuels. You surely can’t be calling for a complete immediate abandonment of ALL renewables given the problems everyone seems to agree with on this blog?

I’ll state them again, then ask you again…

If we’ve reached “peak cheap” conventional energy in the Western hemipshere
If fracking is nothing more than a temporary stop-gap
If we’re reaching peak debt
If impacts of climate change and the tensions, trade-offs between food, energy, water security are accelerating leading to diminishing returns

What’s the imminent alternative if it isn’t some mix of renewables (as a further extender helping us manage the 21st century decline of civilization?)

You’re saying renewables aren’t the answer, it’s useless, so we should simply do what exactly?

The clear leader in the field of sustainability is Elon Musk and I’ve wtinessed 1st hand what he’s doing, I’ll take his scientific/engineering advice over others given that he’s doing rather than talking.

Furthermore I recommend (if you prefer hard science backed by numbers) you read Sustainable Energy — without the hot air by David JC MacKay. http://en.wikipedia.org/wiki/David_J._C._MacKay

You can obtain a free pdf download which is nearly 383 pages full of hard data, science and numbers, even the physics if you can stomach equations. If it’s good enough for Bill Gates, then it should be good enough for you.

Finally we’re on the same team here, I’m not trying to fight with you, to score points etc. we’re trying to solve some mammoth problems and there are no easy answers to soothe rattled emotions. It’s heavy stuff.

• Tolstoy's Degenerate Grandson says:

Tesla is no different that the fracking or dotcom bubbles — it is “a crock of shit” and should not exist.

Tesla: Bonfire Of The Money Printers’ Vanities

The trouble with the money printing madness in the Eccles Building is that it generates huge deformations, misallocations and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century. The resulting carnage, needless to say, is not small. Combined financial and real estate asset markdowns totaled about $7 trillion after the dotcom bust and$15 trillion during the 2008-2009 financial crisis.

Yes, the Fed has managed to reflate this cheap money bubble for the third time now, but the certainty that it will splatter once again is not the issue at hand. What gets lost in the serial bubble-making process of modern central banking is that vast real resources—labor, capital and materials—- are misallocated owing to mispricing of stock, bonds and real estate during the bubble inflation phase.

During the bust phase, of course, these excesses are written-down on financial statements and often liquidated entirely on an operational basis. But that’s just the problem. These bust-phase corrections amount to deadweight losses to the economy—-a permanent setback to growth and societal prosperity.

The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla—–a crony capitalist con job that has long been insolvent, and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.

Not surprisingly, the speculative mania on Wall Street has reached such absurd lengths that Telsa is being heralded and valued as the second coming of Apple and its circus barker CEO, Elon Musk, as the next Henry Ford. Indeed, so raptured were the day traders and gamblers that in the short span of 33 months between early 2012 and September 2014 they ramped up Tesla’s market cap from $2.5 billion to a peak of$35 billion.

That’s a 14X gain in virtually no time—-and its not due to the invention of a revolutionary new product like the i-Pad. Instead, we’re talking about 4,600 pounds of sheet metal, plastic, rubber and glass equipped with an electric battery power pack that has been around for decades, and which is not remotely economic without deep government subsidies.

Beyond that, the various Tesla models currently on the market carry price tags of $75k to more than$100k. So they are essentially vanity toys for the wealthy—–a form of conspicuous consumption for the “all things green” crowd.

But notwithstanding all the hype on Wall Street, there was nothing remotely evident in its financials that justified Telsa’s $35 billion peak market cap. Net sales for the LTM period ended in September amounted to$2.9 billion, meaning that speculators were putting a silicon valley style multiple of 12X sales on a 100-year old industrial product; and one sold by a fly-by-night company distinguished from its auto company peers, which trade at 0.5X sales, only by marketing hype and a high cost power plant that could be made by any of two dozen global car companies if there was actually a mass market demand for it.

Needless to say, Tesla’s meager LTM sales were not accompanied by any sign of profits or positive cash flow. September’s LTM net income clocked in at negative $200 million, and operating cash flow of$150 million was dwarfed by CapEx of $700 million. Unless you are imbibing in the hallucination-inducing Cool Aid dispensed by Goldman Sachs, which took this red-ink machine public in 2009 and has milked it via underwritings, advisories and early stage investments for billions, Tesla’s valuation was patently absurd. Yet the gamblers piled-in based on the utterly improbable assumption that oil would remain at$115 per barrel for ever; that a mass market for electric battery autos would soon develop; and that none of the powerhouse marketing and engineering companies like BMW, Toyota or even Ford would contest Tesla for market share at standard industry profit margins.

The truth is, there is massive excess capacity in the global auto industry owing to government subsidies and bailouts and to union protectionism that keep uncompetitive capacity alive; and that chronic condition is now especially pronounced due to the wildly soaring growth of unused production capacity in China. This means that the global economy is literally saturated with expert resources for auto engineering, design, assembly, machining and component supply.

Consequently, if a mass market were to develop for battery powered vehicles these incumbent industry resources would literally swarm into Tesla’s backyard. So doing, they would eventually drive margins to normal levels, sending Elon Musk’s razzmatazz up in the same cloud of smoke that has afflicted many of his vehicles.

These is no reason to think that any long-term mass market player in the auto industry could beat Toyota’s sustained performance metrics. In the most recent period, its net profits amounted to 7.5% of sales and it traded at 11X LTM net income. So even if you take as granted the far-fetched notion that in a world of $2-3 per gallon gasoline——-which is likely here for a sustained duration—-that a mass market will develop for electric battery vehicles, Telsa would still need upwards of$50 billion of sales at Toyota profit rates and valuation multiples to justify last September’s peak market cap.

So let’s see. Tesla’ CY 2014 sales totaled $3.2 billion, meaning that you would need to bet on a 16X gain in sales over the next few years and that today’s rag tag start-up manufacturing operation could achieve levels of efficiency, quality and reliability that it has taken Toyota 60 years to perfect. Yet take one hard look at Tesla’s historical financials and it is blindingly evident that there is no reason for such an assumption whatsoever. In fact, Tesla is not a Toyota in the making; it is a Wall Street scam in plain sight. It has been a public filer for seven years now, and here are the horrific figures from its financial statements. Since 2007 it has booked cumulative sales of just$6.1 billion, and that ain’t much in autoland; it amounts to about one week of sales by Toyota and two weeks by Ford. Its cumulative bottom line has been a net loss of $1.4 billion, and the losses are not shrinking—-having totaled nearly$300 million for 2014 alone.

More significantly, during its entire seven years as a public filer, Tesla has failed to generate any net operating cash flow (OCF) at all, and has, in fact, posted red ink of $500 million on the OCF line. During the same 7-year span ending in Q4 of 2014, its CapEx amounted to a cumulative$ 1.8 billion.

So go figure. Combining OCF and CapEx you get a balance sheet hemorrhage of nearly $2.4 billion. The real question, therefore, is not why Tesla was worth$35 billion, but why it wasn’t bankrupt long ago?

The answer is that it was and should be now. Tesla would not have even made it to its Goldman-led IPO without a $500 million bailout by Uncle Sam. That the hard-pressed taxpayers of America were called upon to underwrite a vanity toy for the wealthy—–and one peddled by a serial milker of the public teat—is surely a measure of how deep crony capitalist corruption has penetrated into the business system of America. But even these egregious windfalls do not begin to compare with the gifts showered on Elon Musk by the money printers in the Eccles building. Tesla has stayed alive only because it has been able to raise billions of convertible debt in the Wall Street casino at yields which are the next best thing to free money. In short, it has been burning massive dollops of cash for years and replenishing itself periodically in capital markets which are rife with momo speculators flying high on cheap carry trades and the Fed’s buy-the-dip safety net. During the spring of 2014, for instance, it raised$2.3 billion of 5- and 7-year money at interest rates ranging between 25bps and 125bps. That’s right. This company is a red ink spewing rank speculation, but the money printers have enabled it to raise cash that costs virtually nothing on an after tax basis. Call it free money for the Telsa bonfire of the vanities.

True enough, these miniscule interest rates were attached to convertible bonds—-so supposedly the “upside” justified giving a proven red ink machine free money. Yes, and the strike price on those converts implied a market cap of about $50 billion! In truth, Tesla’s true losses are even greater than its accounting statements suggests. For instance, it has booked upwards of$500 million of revenue and profits owing to ZEV (zero emissions vehicle) credits. The latter were invented by Al Gore after he finished inventing the internet, and amount to nothing more than bottled air—-clean or not.

Also, Tesla’s affluent customers pocket about $10,000 per vehicle of Federal and state tax credits, meaning that taxpayers have fronted another$500 million or so to stimulate Tesla sales.

Finally, Tesla’s marketing machine has even converted itself into a repo man for the wealthy. That is, Tesla guarantees a large share of its customers that it will buy back their vehicles at no loss after three years.

So how does it possibly make a profit deploying this blatant free rent-a-car gimmick? Ask its accountants. In their wisdom and clairvoyance, they have undoubtedly assumed that the residual value of these vehicles will be levitated by the same juice which fuels Tesla’s stock price.

Yes, Tesla is a bonfire of the vanities. In due course, the bubble will collapse and billions will have been wasted—-much of it with taxpayer money—on things like its imaginary gigafactory in Nevada. But that’s what happens when central bankers destroy honest price discovery and turn capital markets into a gambling casino.

Oh, yes, and the whole “green” story is a crock, too.

* * *

http://www.zerohedge.com/news/2015-02-21/tesla-bonfire-money-printers-vanities

• I cannot see that anything as high priced as a Tesla is “green”. Prices are to a significant extent a marker of embedded energy. High price means lots of energy used. Electric cars do not hold their value at all–no one wants to buy a used Leaf or a used Tesla. I have no idea what they will do with their many bought-back cars. And of course, they depend on the ability of the government to keep up roads, and the maintenance of electric supplies for their cars.

• Timothy says:

Unfortunately, I have to agree with you. I love Richards insight, but he is primarily catering to BAU.

Here’s my conclusion from about ten years of interest and following our various crisis.

There is no solution for 7 billion people or BAU.

Renewables will only make things more difficult for those that manage to make it through the bottleneck becuase the energy wasted on them would not have been invested in sustainable organic food production.

If the goal is to save as many people as possible and continue feeding them, than the solution is to start developing sustainable food production now.

Growth is dead, industrial civilization is dead. If we waste time on renewables, what we will end up with is billions of people starving to death and a few populations of ‘wealthy’ people surviving in style for a while.

• richard says:

I have no poinion on the relationship between drought and climate change, just posting for information…

15. Daniel Hood says:

Hashtag trends: #DiminishingReturns

“Bankrupt Women Pay the Price of High Living”

“In bankrupt Britain 1,500 types of credit cards are available from 60 companies & women make up 44% of the card-owning population. Over 11 million women own more than one card.”
Apparently successful women are admitting insolvency after stacking up credit card debts as high as £100,000. The money goes on designer clothes and extravagant social lives.’Some of them shop to replace whatever is missing in their lives,’ said one expert.” (“expert” probably a divorced Ex husband)

“Credit analysts say personal bankruptcies, unheard of among women just a few years ago, are now growing at 25 per cent a year.”

Basically the UK is living on debt and that’s coming to an end, yet another sign of “diminishing returns”

http://www.dailymail.co.uk/news/article-61867/Bankrupt-women-pay-price-high-living.html

16. Don Stewart says:

Dear Gail and Finite Worlders

Notes on a biological/ thermodynamic model.

(1) What we are really interested in is work…not energy per se. For example, the enormous energy from the sun moves out into space, some of it strikes Earth, and through physical processes that energy warms Earth to a temperature which supports biological life. Our prime interest is the amount of warming, work, rather than the original energy which came from the sun. A good model should allow us to think about alternatives to our current practices which get work done.

(2) Work needs to be defined carefully. We can zoom out to a large picture, or zoom in for details. The warming of the Earth to a biology friendly temperature is a zooming out process. At an intermediate focus, we might look at oil production, which can be burned in heat engines which can then do work, such as transporting goods over the surface of the planet. At a smaller scale, we might look at Nate Hagens’ formulation that humans burn fossil fuels in order to make stuff which we hope will trigger our hormones and neurotransmitters. The interesting work in this close up view is the triggering of the hormones and neurotransmitters. If we get even smaller and look at cells, we find that much of the work is done by Brownian Motion, the random jiggling of molecules inside the cell which brings them into contact with enzymes. Brownian motion happens due to the fact that the sun heats Earth to a temperature supportive of biological activity, and evolution has created our body which is superbly adapted to make use of Brownian motion.

(3) If we compare the work accomplished at the small scale to the theoretical work contained in the original energy, then we find enormous multipliers. The ratio of the suns energy’s potential work to the actual work of Brownian motion in the cells is a very large number. The ratio of the energy expended to the work embedded in the release of hormones and neurotransmitters is enormous. If we look at industrial food production, we find that roughly 10 times more energy is put into the food than we consume when we eat the food…an energy sink.

(4) If we think that an energy source is going to decline, we can look in two places for a solution. The first is a replacement source of energy. We are bathed every day in enormous amounts of energy from the sun, the tides, and from atomic energy. The sun alone provides us with 3,766,800 exajoules of energy. Photosynthesis captures 3,000 of those exajoules. All human activities consume 500 exajoules of energy. We do not lack energy. If we have a lack, it is either because we do not have the knowledge to use the energy available, or else because we are being rather dumb in terms of how we use the energy.

(5) Which leads us to the second place to look…smarter selection of the work to be done, rather than just more work. Can we, for example, figure out less energy intensive ways to move those neurotransmitters and hormones around? Is there any evidence that we actually need to expend 500 exajoules to move neurotransmitters and hormones?

(6) Harari, in Sapiens, makes the bold claim that, for an individual human, happiness is independent of history. Yet we are expending those 500 exajoules and destroying our home planet in a vain effort to achieve happiness by manipulating history. A Harari type view is either looking from a very large angle or a very small angle, however you want to characterize it.

(7) Moving back to an intermediate view, we can look at a thermodynamic model of oil production. Our interest isn’t really in oil production, but in the work that the oil can do for us. Keeping the definition of ‘work’ at the intermediate level, we can think of the output from an internal combustion engine or moving a mass from Point A to Point B.

(8) Consider an oil well as an indicator of work done. The work done consists of both current work such as pumping oil and water out of the hole, or mining and hauling sand for fracking, and also embedded work such as is reflected in the steel pipes used and the drilling rig. Now let’s look at Art Berman’s numbers to get some back-of-the-envelope estimate for some metrics of interest. Berman gives us some statistics for wells drilled in Saudi Arabia, Russia, and the US.

Using the Saudi numbers to establish an index of 1, the Russians drilled about 25 times more wells, and the US 100 times more wells. Now a simplistic assumption is that the Russians are doing 25 times as much work as the Saudis, and the United States is doing 100 times as much work as the Saudis, all of them getting about the same production of oil.

(7) A barrel of oil is capable of doing work using some well understood engineering principles. Let’s assume, for our envelope calculations, that a barrel of oil has the same work potential no matter where it comes from. A thermodynamic model, of the type BW Hill uses, will first deduct the oil used to produce the oil in order to estimate how much work the barrel can do (besides producing itself). Lets suppose that it takes 1 barrel of oil to produce 100 barrels of oil in Saudi. Then it takes 25 barrels of oil to produce 100 barrels of oil in Russia, and 100 barrels of oil to produce 100 barrels of oil in the US. A US barrel of oil is currently not capable of doing any work other than producing itself.

(8) The calculations in (7) are not meant to be a definitive study of oil production. They are intended to simply indicate that the statements BW Hill make about the futility of tight oil are not simply ridiculous. The calculations should alert us to the folly of predicting Peak Oil by the peak of production. Peak Oil can be more usefully defined as the point at which oil’s work capability (beyond simply producing itself) peaks. Alternatively, the BW Hill model also calculates a value of the oil to the public, which defines the ability to pay for the oil. Peak Oil could be defined as the point where the maximum difference between the work capability and the ability to pay occurs. That peak, again, would be somewhere in the past. In other words, Peak Oil has already happened. Our problem now is adapting to a world where Oil has already Peaked.

(9) A thermodynamic model needs boundaries. For example, we can define oil production narrowly, to include only the cost of the well. Alternatively, we might think that the maintenance of the Saudi military and internal security forces are essential to their production of oil, and include the oil required to support those elements as one of the ‘oil costs of producing oil’. It is also true that a barrel of oil isn’t much use to anyone. A gallon of diesel fuel plus a truck plus a road network plus a network of retail outlets to sell whatever it is we are transporting IS useful. So we might try to estimate how much oil it takes to support the military plus the internal security forces plus the trucking industry plus the road network plus the retail outlet network. I’m not trying to compile a catalog here, just indicate that where one draws the boundaries is quite significant. Narrowly drawn boundaries are probably not much use as we try to figure out where we are and where we might want to go. The broader the boundaries, the less work potential for other things the barrels of oil will have, in a thermodynamic model in the BW Hill style.

(10) Back in (4) and (5) I stated that we might try to find alternative sources of energy and that we might try to be smarter in selecting the work to be done. There are some other alternatives also. For example, consider the 3000 exajoules which are captured by photosynthesis. Biological farming methods work to increase the human benefit from those 3000 exajoules. For example, we breed plants which are particularly beneficial to humans, and grow them instead of weeds. We replace natural forests with orchards of fruit and nut trees. Another example is passive solar. We divert some of those 3,766,800 exajoules of solar energy into heating our water and heating our dwellings.

(11) The boundary question is probably the single largest factor which is not flexibly considered by most models. We know that we have one brain, but two minds. We also know that our minds are both embodied in our own body…not just in the brain…and that our minds are also embedded in our society. The most rational response to an energy predicament may well be to learn to use our minds to better effect. Fortunately, neuroscience is currently making great strides understanding our minds.

• Glenn Stehle says:

► “A thermodynamic model, of the type BW Hill uses, will first deduct the oil used to produce the oil in order to estimate how much work the barrel can do (besides producing itself). Lets suppose that it takes 1 barrel of oil to produce 100 barrels of oil in Saudi. Then it takes 25 barrels of oil to produce 100 barrels of oil in Russia, and 100 barrels of oil to produce 100 barrels of oil in the US. A US barrel of oil is currently not capable of doing any work other than producing itself.”

BW Hill is merely regurgitating Charles Hall’s theory. But, as Gail notes above: “The EROEI approach…is difficult to calculate. Different researchers get quite different answers, when analyzing the same energy product.”

► “Alternatively, the BW Hill model also calculates a value of the oil to the public…”

This is where BW Hill +really+ goes off the deep end. How does one calucate something as intangible and variable as “value”? For regardless of what the materialists, objectivists and instrumental rationalists preach, man does not live by bread alone.

Perhaps no one has written more compellingly about this than Max Weber. By placing instrumental rationality, objectivism and materialism above all other forms of thinking, feeling and valuing, Weber feared modern man would construct himsef an “iron cage” that would ultimately destroy quality of life in Western Civilization. This iron cage would imprison the human spirit and cut us off from the deepest sources of our being, “leaving a great void in the souls of men which they seek to fill by curious activity and through devices and substitues.”

As an exercise, let’s take energy use of vaious countries, expressed in kg of oil equivalent per capita:

♦ Cuba: 992
♦ China: 2029
♦ Germany: 3811
♦ United States: 7032

http://data.worldbank.org/indicator/EG.USE.PCAP.KG.OE

Instrumental rationality, what with its equation of reality with the measurabe and the quantifiable, would have us believe that the United States has the world by the tail. It is, after all, the country which provides its public with the highest energy use per capita.

And yet, I would be willing to bet that a great many Germans and Cubans place a far greater value on their own low-energy lifestyles than they do the US’s high-energy lefestyle.

• Don Stewart says:

Dear Glenn Stehle
I referred to BW Hill’s model because it is a current model, is vigorously defended by BW, attacked as rubbish by many others, and leads to provocative statements such as ‘tight oil is worthless’.

As far as Gail’s criticism, so far as I can tell, people come up with different answers for EROEI primarily because they draw the boundaries in different places. I discussed that in terms of where to draw the boundaries for Saudi oil. If one draws the boundaries widely enough (e.g., the boundary is really the global economy, which is all oil dependent), then the evidence since 1980 or thereabouts is that we have passed the limits, because the world is going deeper and deeper into debt.

In terms of the importance of non-materialist values, I don’t see how you can accuse me on that subject, since I covered that topic. My quotation from Harari and my references to Nate Hagens and the neuroscientists should allay your fears on that point.

HOWEVER, if we take a middle perspective, the data shown on the Art Berman graph should give us some cause for worry if we are counting on tight oil. The advice to take a close view and a long view in alternating perspectives is advised by both Kelly McGonigal from a neuroscience angle and by Mobus and Kalton from a Systems modeling angle.

Don Stewart

• Glenn Stehle says:

Well I suppose if one “draws the boundaries” so as to include the entire energy consumption of a society in the denominator of the EROEI ratio, then it’s possible to come up with an EROEI less than 1. But I would argue that no society can operate with an EROEI less than 1 for long.

This is so because energy is not a commodity like gold, diamonds or silver that can be easily stored for long periods of time after it is produced. It must be used at almost the same moment it is produced. The reason the United States +appears+ to have run an EROEI less than 1 for quite some time is that Jimmy Carter militarized US energy policy in the 1970s with his Carter Doctrine, and this “oil well” of conquest and plunder produced oil quite efficiently for US society, until it didn’t. Now global oil supply is much tighter, entire regions of the world are in rebellion against US domination, and Carter’s oil well, even though the military pumping unit is pumping at full speed, is drying up.

But the real point I’m trying to make is that it is possible, as Cuba has shown, to run a functioning society on a heck of a lot less energy consumption than what the US does. Net result: the denominator in the EROEI ratio is reduced, making it easier to maintain an EROEI of 1. That would require, however, a shift in societal values away from materialist-consumerist values towards more spiritual ones. Given man’s nature that he requires something to believe in, if materialism is taken off the table, then this void can be filled with spiritualism.

The reason BW Hill doesn’t talk about this is probably for the same reason that Naomi Klein doesn’t talk about it. He believes such a shift is not possible. And maybe he’s right. As Elizabeth Kolbert notes of Klein:

***beginning of quote***
To draw on Klein paraphrasing Al Gore, here’s my inconvenient truth: when you tell people what it would actually take to radically reduce carbon emissions, they turn away. They don’t want to give up air travel or air conditioning or HDTV or trips to the mall or the family car or the myriad other things that go along with consuming 5,000 or 8,000 or 12,000 watts. All the major environmental groups know this, which is why they maintain, contrary to the requirements of a 2,000-watt society, that climate change can be tackled with minimal disruption to “the American way of life.” And Klein, you have to assume, knows it too. The irony of her book is that she ends up exactly where the “warmists” do, telling a fable she hopes will do some good.
http://www.nybooks.com/articles/archives/2014/dec/04/can-climate-change-cure-capitalism/
***end of quote***

• Don Stewart says:

Glenn Stehle
I would agree with you that the US has been ‘stealing’ oil by various military and financial shenanigans. However, BW Hill’s model is for the global oil situation. And, since about 1980, global debt has been increasing as a percentage of GDP. Steve Keen points out that there are reasons for some debt, but no reasons why a well-functioning economy should have an increasing ratio of debt to production. Therefore, the global metabolism is not functioning well. One can come up with alternative explanations, but oil has doubtless been a contributing factor.

As for Hill being willing to tell the truth, he says ‘by 2030 the Age of Oil will be over’. That is 15 years. That’s a pretty strong statement. He also identifies 2012 as the year when the pursuit of new oil became uneconomic. I can’t imagine that anyone in the Oil Patch wants to hear that.

Don Stewart

• Tolstoy's Degenerate Grandson says:

Reducing carbon emissions means growth ends.

Because growth is all about increasing the burning of cheap fossil fuels.

If we slow (or stop) the burning of fossil fuels (without a cheap substitute) we enter a deflationary death spiral.

People consume less, resulting in layoffs, which reducing consumption resulting in more layoffs etc etc etc

People are very much right to turn away. Perhaps deep down they sense the logic that I have laid out above

• “Given man’s nature that he requires something to believe in, if materialism is taken off the table, then this void can be filled with spiritualism.”

Hard to do that, when society has been driving the scientific method and scientism so hard. Indoctrinate people to only believe in what can be proven, then try to make them believe in things that cannot be proven.

• Glenn Stehle says:

I think one day people are going to wake up to find out that much of what they thought was “proven” wasn’t proven at all.

Then, as happens in the twilight of all great empires, they will surrender to an orgy of national introspection, desperately attempting to discover at what point reality had been exchanged for illusion.

• Glenn Stehle says:

I would also add that anytime one starts talking about concepts like value, worth, use value, utility, exchange value and price one is venturing onto a theological and philosophical mine field that has existed since at least the days ancient Greece.

As Hannah Arendt notes in ‘The Human Condition’, “value consists soely in the esteem of the public realm where the things appear as commodities, and it is neither labor, nor work, nor capital, nor profit, nor material, which bestows such value upon an object, but only and exclusively the public realm where it appears to be esteemed, demanded, or neglected.”

And to claim that one has a model that “calculates a value of the oil to the public,” and on top of that to label it a “thermodynamic model,” strikes me as a colossollay naive example of scientism.

• Don Stewart says:

Glenn Stehle
The value he calculates is what the public can afford to pay. No theology.

Don Stewart

• Glenn Stehle says:

OK. I’ll bite.

value = what the public can afford to pay

So how do we calculate “what the public can afford to pay”?

• Don Stewart says:

Glenn Stehle
I have paid less attention to that part of their model. I do know that they had the same thoughts as Gail on affordability of oil. In late 2013 they added that part of their model. It led them to predict a fall in prices for 2015. They predict a continued decline in ability to pay. I assume they have some sort of GDP/ Oil link, just as Gail does. If less work can be done with the oil produced, because of the amount which was required to produce the oil, then the economy will enter recession. Thus, ability to pay will decline. I am pretty sure they don’t have a sophisticated finance model, which might let consumption and production hang on due to the effects of money printing.

I do not know how they think the end game will play out…just that it won’t involve oil. They have come under heavy criticism from some people who are convinced that the price of oil has to increase as it grows more scarce. BW Hill and Gail and a few others are alone in expecting prices to remain depressed.

Don Stewart

• Glenn Stehle says:

@ Don Stewart

► “I have paid less attention to that part of their model.” ◄

Ah ha! That’s what I thought. So the bottom line is this:

value = what I say it is

BW Hill is cut out of the same cloth as any good right-wing or left-wing economist, like Ricardo or Marx, and their “desperate belief in an absolute value.” (Gunnar Myrdahl, “The Political Element in the Development of Economic Theory”)

And therefore most of what follows is an attempt to put the imprimtur of science upon their own normative judgments, to dress up their own values as “science.”

And as a great deal of recent research in the fields of psychology and neuroscience has shown, this is what human beings do best. The psychologist Jonathan Haidt, for instance, has noted that his research

***beginning of quote***
suggested that emotion played a bigger role than the cognitive developmentalists had given it. These findings also suggested that there were important cultural differences, and that academic researchers…study people like ourselves…whose morality is not representative of the United States, let alone the world….

Our brains, like other animal brains, are constantly trying to fine tune and speed up the central decision of all action: approach or avoid. You can’t understand the river of fMRI studies on neuroeconomics and decision making without embracing this principle. We have affectively-valenced intuitive reactions to almost everything, particularly to morally relevant stimuli… Reasoning by its very nature is slow, playing out in seconds.

Studies of everyday reasoning show that we usually use reason to search for evidence to support our initial judgment, which was made in milliseconds. But I do agree with Josh Greene that sometimes we can use controlled processes such as reasoning to override our initial intuitions. I just think this happens rarely….

[E.O.] Wilson even said that these emotive centers give us moral intuitions, which the moral philosophers then justify while pretending that they are intuiting truths that are independent of the contingencies of our evolved minds….
http://edge.org/conversation/moral-psychology-and-the-misunderstanding-of-religion
***end of quote***

In these recent studies neuroscientists and psychologists are just now coming around to what a handful of philosophers and theologians have suggested for quite some time now. Here, for instance, is what Max L. Stackhouse of the Princeton Theological Seminary had to say in his foreward to Robert H. Nelson’s “Economics as Religion”:

***beginning of quote***
[Nelson wants] economists, plus ethically alert citizens and socially active believers in religious traditions, to recognize that very profound assumptions about the ulitmate issues of life are inevitably built into the apparently arid economic theories that shape how we live. He does not want us all to come to this recognition because that would discredit the scientific character of the field, but because it could improve it. He wants economists (and those of us who are not professional economists but who fuss a good deal with economic matters from the perspectives of other disciplines) to come clean about the fact that Economics, no less than other social and historical sciences, however much they use what appear to be morally and spiritually sanitized formulas and complex econometric models, bear within them values in a subtle mix with facts, moral presumptions in a complex blend with argument, matters of truth interwoven with matters of analysis. In fact, ethical, religous, and specfically theological assumptions are not foreign to economic life or economic thought, but pervade them.
***end of quote***

• Don Stewart says:

Glenn Stehle
Are you the kind of person who uses something that someone else, who says he hasn’t studied that part of the model closely, says about BW Hill’s model, to draw damning conclusions about his intellectual achievements? If so…..

Don Stewart

• Glenn Stehle says:

@ Don Stewart

I’m just going by what you said about the model, which was quite explicit. To wit:

“Alternatively, the BW Hill model also calculates a value of the oil to the public…”

Are you now saying BW Hill’s model doesn’t “calculate a value of the oil to the public”? Are you now saying you really don’t know what the model says?

• Don Stewart says:

Glenn Stehle
I have zero interest in debating either how many angels can dance on the head of a pin, or exploring the deep definition of ‘value’ as it exists in your mind.

Don Stewart

• Glenn Stehle says:

And furthermore, I did not “draw damning conclusions” about BW Hill’s “intellectual achievements.” This is a judgment entirely of your own making.

After all, Marx and Ricardo are not too shoddy of company when it comes to the “intellectual achievements” department.

• Glenn Stehle says:

@ Don Stewart

Since a determination of values sits at the heart of every major economic school of thought, I hardly believe that discussing them — what they are, how they are formed, etc. — amounts to “debating how many angels can dance on the head of a pin.”

• bwhill says:

Glenn Stehle said:

“BW Hill is merely regurgitating Charles Hall’s theory.”

Charles Hall is an economist, we are engineers. Our analytical approaches aren’t even vaguely related. If our conclusions are sometimes similar to his it could be considered confirmation, or coincidence. If you wanted to say that Hall’s work is a regurgitation of Cleveland’s you would be correct. To say that our work has anything to do with Hall’s is an incredibly subjective statement without any substantiation!

This is where BW Hill +really+ goes off the deep end. How does one calucate something as intangible and variable as “value”?

Most people use a metric called the $. The Romans used the sesterce, and in Medieval Europe it was head of oxen. To simplify things for our readers we stuck with the world’s reserve currency. Value is a concept that most people in the modern world have a pretty good understanding of by the time they reach the age of five. How did you miss it? http://www.thehillsgroup.org • Glenn Stehle says: Ah ha. The utility or price theory of value is what you subscribe to. And like all good postclassical and neoclassical economists — who also cling to price theory as if it were a life raft in turbulent waters — fervor, certainty and contempt for dissent become marks of honor. Demolish any point of view inconsistent with your own version of truth, portrayed of course as self-evident and beyond dispute. The ultimate cultural victory, after all, is not merely to win an argument but to remove the subject from discussion. But there are some empirical and logical problems with the utility theory of value that are not so easily dispensed with, and that is why it has been rejected by a wide swath of thinkers all the way from Copernicus to Adam Smith. And the most glaring of these is perhaps the diamond-water paradox: the contradiction that even though wáter is more useful, in terms of survival, than diamonds, diamonds command a higher price in the market. That’s why a host of thinkers, including Aristotle, Smith, Ricardo and Marx, rejected the utility theory of value in favor of other theories: normative theory of value, labor theory of value, cost of production value of theory and Marx’s modified labor theory of value. But all that changed in the 20th century with the advent of postclassical and neoclassical economics. As Robert L. Heilbroner explains, orthodox economists are willing to overlook the violence which price theory does to factual reality, logic and history because “it avoids troublesome considerations of class conflict and cooperation as the fundamental problem of social order, and puts in their place a view of social order as the outcome of individuals contending for pleasure or avoiding pain in an environment of scarcity.” And in this “view that sees utilities as the fundamental and irreducibe building blocks of price,” Heilboner continues, “gross national product is a meaningless concept, the ‘summation’ of individual experiences of pleasure and pain.” Nevertheless, price theory is “much in tune with the conservative ideology of our time,” he adds, “and indeed helps to create and support that ideology.” But, as Heilbroner concudes, “I would call attention to the implacable determinism of modern price theory, based on formal axiomatics, and remind my readers that the serving up of normative goals disguised as positive statements is an ancient failing of all social science for which no remedy has yet been found.” Robert L. Heilbroner, “The Problem of Value in Economic Thought” http://www.jstor.org/discover/10.2307/40970879?uid=2129&uid=2&uid=70&uid=4&sid=21106171016411 • Charles Hall is an ecologist. I would not depend on Charles Hall for my economics. Our problem is a demand problem–really an affordability problem. The EROI analysis assumes that it is a supply problem. • Don Stewart says: Dear Gail and Finite Worlders In the above, I inadvertently left out this: When additional work is required to extract or process the oil, then the result in terms of work available from the oil will follow a Seneca Cliff trajectory. The phenomenon is explained by BW Hill as follows: ‘Converting the energy from petroleum into the work needed to extract it comes at a loss. That conversion efficiency is about the same as the average internal combustion engine, which is about 20%. That is, every time the energy to extract a barrel of petroleum goes up 1 BTU it takes almost 5 more BTU from the energy content of the petroleum to accomplish it. The total energy to produce petroleum goes up almost 5 times as fast as does the energy needed to extract it.’ Sorry for the omission…Don Stewart 17. Stefeun says: The European Commission has just set the doors wide open for Syngenta, Monsanto et al. to take control over the whole food supply chain. MSM don’t seem to be informed… “European Patent Office upholds patents on broccoli and tomato Munich 27 March, 2015 The Enlarged Board of Appeal of the European Patent Office (EPO) has decided on the precedent cases of broccoli and tomato (G2 / 12 and G2 /13). The EPO made clear that while processes for crossing and selection cannot be patented, plants and animals stemming from these processes are still patentable. This illogical decision was a long awaited outcome of a precedent case on the patentability of plants and animals derived from conventional breeding. The coalition No Patents on Seeds! has heavily criticised this decision. The organisations are warning about the increasing monopolisation of breeding of plants and animals needed for food production.” more on http://no-patents-on-seeds.org/en/information/news/european-patent-office-upholds-patents-broccoli-and-tomato 18. Kulm says: Today’s world still can be saved if there is a massive dieoff. Today’s winners will rather see the Cathedral continue than reduce their standards of living. During the Bengal Famine of 1943 (yes, that is not ancient history), 7 million Bengals died. None of them rebelled. They just died . Satayjit Ray made a film about that famine. The protagonist is a teacher, who was in a better position than others because he was a low-ranking Brahmin who doubled as the village priest. The villagers die without a trace. The teacher, a tool of the British Raj, survives and his wife gets pregnant at the end of the movie, showing his line will continue. Such will be the fate of most of the economically irrelevant. Some people will rebel but it is unlikely that they will penetrate the well-fortified palaces of the economically relevant. There will be a lot of misery, but those who were responsible for that will probably escape their consequences. = 19. edpell says: If we had a free market then the financial system could fail. But the bigger picture is the government in the U.S. and China will not allow the market to function. It will use command economy methods if needed. Basically return to your home village (this is part of English poor law) and starve to death if there is no food there. The banks will be commanded to hold the bad paper and just not complain. Any liquidity will be provided to the banks by the government. Isn’t this what has already been done, at least the last two. When physical reality forces the first then the system falls. 20. edpell says: On derivatives. They have zero value if nothing changes. They are a hedge for moderate moves up or down. Everyone knows if the system falls apart nobody pays. Derivatives have no intrinsic value. They only value is protection. • Why did the US government bail out AIG then? I am not sure, “Everyone knows if the system falls apart nobody pays.” The plans now seem to be to make depositors pay, if derivatives have problems. Part of the problem is simply a timing issue. Even if derivatives offset, it may take a while to get the various settlements performed. 21. Don Stewart says: Dear Gail and Finite Worlders Your article is reprinted on Peak Oil News. Some interesting comments. BW Hill comments, and I excerpted this tidbit…Don Stewart ‘With production at 91 mb/d, selling for$57/b, the world’s petroleum producers are losing $1.3 trillion per year. The average cost to produce a barrel of oil is now in the$100/barrel range, and it is increasing with every new barrel added to the world’s accumulated production.’

22. MG says:

One song from the Czechoslovakia from 1985 (4 years before the fall of the Soviet block) in English version:

It mocks the cornucopian belief in technology as the solution for the human population on the Earth with limits: take them to Mars…

23. Stilgar Wilcox says:

“Perhaps the issue as we reach limits is that world economic growth sinks too low, and it is because of this slow growth that wages stagnate, debt stops rising quickly, and oil (and other commodity) prices drop too low.”

Gail, I think one scenario going on right now is in spite of oil price dropping below what producers need to explore and drill, investors are of the mistaken assertion that this current low oil price is only temporary, and that their willingness to bank on the future will be returned handsomely with great investor profits. This was bound to happen until such time investors have been pummeled by losses, and then as investment shrinks from fear of risk, then we’ll see a big drop in future supply.

• I think you are right on this–investors think the current low oil price is only temporary. Of course, they haven’t thought through how widespread the problem is, or what would happen to the economy if the price actually did rise again.

Maybe we should be thankful for investor overoptimism, and hope it continues for quite a while longer. Of course, eventually all the storage capacity for oil will fill up, and put an end to at least some of the overoptimism.

• Glenn Stehle says:

► “Of course, eventually all the storage capacity for oil will fill up, and put an end to at least some of the overoptimism.”

There is some evidence now coming to light that the fill-up of oil storage capacity was contrived — part of a plot by Washington, Saudi Arabia and Big Oil to talk the price of oil down. To wit:

“The recent unprecedented surge in oil imports has again prompted a review of things here….

“We haven’t seen this level of import imbalance period since 2013, as the chart below demonstrates via Cornerstone. In the past 6 months, the level of imports relative to the requirement or need by refineries has jumped not once but twice. The 1M B/D “gap” goes a long way in explaining the oil inventory stock build which has been 5MB-10MB per week.

“If adjusted, the builds over the past 6 months without such imports would not exist at all or at the very least be greatly reduced. So is this occurring as part of the inability of refineries to handle the mix of output domestically or is this part of some plot to build inventories to crash the prices of oil? Quite frankly we can’t say for sure but anomalies such as this must be exposed so that they can be debated given that there has been ample debate on Saudi motivations for holding down oil prices and the ongoing media cheerleading on lower oil prices.

http://oilprice.com/Energy/Crude-Oil/A-Plot-To-Hold-Down-Oil-Prices-Or-Just-A-Happy-Coincidence.html

And a couple of days ago the EIA did a complete flip-flop regarding US oil production. For the longest time the agency clung to its prediction, in defiance of much evidence to the contrary, that US oil production would continue to increase until April of this year, and then be flat through the remainder of the year. It is now acknowledging that US oil production declined significantly in January:

“Big Hit For U.S. Oil Production In January”
http://oilprice.com/Energy/Crude-Oil/Big-Hit-For-U.S.-Oil-Production-In-January.html

http://i.imgur.com/Wzyir8p.jpg

So if US oil production is indeed on the wane and world oil demand is surging, we will see if the plot by Washington, Big Oil and Saudi Arabia to keep oil prices depressed will be successful or not.

• Stilgar Wilcox says:

“Of course, they haven’t thought through how widespread the problem is, or what would happen to the economy if the price actually did rise again.”

Yeah, and either the price will not rise enough, or as you point out above, economic feedbacks will force the price back down below the needed threshold of positive investment return. Once that other shoe falls for the investor, will it also be noticed by the MSM? They always seem to be a buck short, day late having the courage to look the monster in the eye, yet that poignant moment will represent an open door of opportunity to gaze at the real bugaboo here, tipping point evidence of diminishing returns via oil depletion.

It also goes to figure that once TPTB get wind of exactly what is happening, they will step forward to find some unusual fancy fiscal way to fund oil E&D by borrowing from the future to have a hamburger today, so to speak, so that future supply is scheduled for as long as a net energy deficit can be financed. That will represent the last chess move to keep BAU going because as we know from that geologist, fish can only use the energy that is available, no more. Maybe as a more capable fish we can borrow energy from the future at the expense of certain collapse, but either way it still spells endgame.

24. Don Stewart says:

Dear Gail and Finite Worlders
On Gail’s last post, I gave my summary of Ruth Buczynski’s conversation with Kelly McGonigal on the broad subject of willpower. I stated that no transcript was available to me (because I hadn’t paid the money to get one). However, Ruth has now sent out a sample from the transcript, to encourage people to buy it.

I have made a short excerpt from Ruth’s excerpt to illustrate how neuroscience may be relevant to you during times of stress…such as Finite Worlders face now and Deniers will face shortly. If you read my summary from Gail’s previous posting, you will see where this fits in.

If this interests you, and you are willing to pay the money to hear the video discussions and read the transcripts, I encourage you to search on the National Institute for the Clinical Application of Behavioral Medicine. You want a gold membership for the current round of interviews.

DON STEWART
PS At the end of Kelly’s first answer, you will see the phrase ‘eat what they really want to eat’. That is NOT the junk food. Kelly has already explained that we have one brain with two minds. Our primitive mind wants the junk food, but our frontal lobes mind knows that the carrots and celery are what we should eat. So, you get the autonomic nervous system benefits when you resist the primitive mind and choose the more advanced mind. You can see how this is diametrically opposite the goals of Global Capitalism.

PPS I should also mention that Kelly has a new book on dealing with stress which will be out in about 2 or 3 weeks. Can be preordered at the usual bookstores.
———–
Dr. Buczynski: Tell us, how are these studies done? What do they have the subjects do?
Dr. McGonigal: One of the original studies that Suzanne did actually brought people into the laboratory for a taste test.

If you can imagine this, they’re told not to eat, they come into the laboratory and they’re alone in a room. They see this amazing spread of brownies and cookies and chocolate. They’re like, Yes, I’m ready for this!

There also happens to be a little tray of carrot sticks and celery sticks.

The researcher comes in and says, “Okay, the delicious stuff like the brownies and cookies – those are for the next participant. Your job is to taste test the vegetables – the carrot and celery sticks. You can eat as many of those as you want, but please don’t touch the desserts.”

“When people resist the temptation their heart rate slows down while their heart rate variability and their autonomic balance increases.”
Then, the researcher leaves the room and keeps track of whether they resist the temptation or not.

You can see that when people resist the temptation, eat what they really want to eat, their heart rate slows down while their heart rate variability and their autonomic balance increases.

Dr. Buczynski: Their balance increases. Does the variability increase?

Dr. McGonigal: The heart rate variability increases.

Dr. Buczynski: What do we mean by heart rate variability? There’s a wide range of people on the call, so let’s make sure everyone understands.

Dr. McGonigal: Sure. Heart rate variability is very different from heart rate which we’re more used to measuring.

If you were just to notice right now your own breath and notice when you breath in and when you breath out, if you’re autonomic nervous system is in a balanced state right now, your heart rate will increase when you breath in, and your heart rate will decrease when you breathe out.

“People who have higher baseline heart rate variability have more willpower and more resilience to stress.”
That’s an index of the balance between sympathetic and parasympathetic activation…People who have higher baseline heart rate variability, first of all, have more willpower and more resilience to stress.

They also have better cardiovascular health and it’s actually a great predictor of all-cause mortality and cardiovascular well-being.

Dr. Buczynski: The discrepancy is between their rates at breath in versus breath out.

Dr. McGonigal: It’s the synchronization between your heart rate and your breath. There’s nothing magical about that; it’s just a measure of the balance of your autonomic nervous system.

It means that you aren’t stuck in a stress state, which of course many people are. When we talk about high heart rate variability, what we’re really talking about is the state of the nervous system, but heart rate variability is the way that we measure it.

Dr. Buczynski: And heart rate variability is correlated…with willpower.

Dr. McGonigal: Yes it is. If you bring people into the laboratory and you measure their baseline heart rate variability, you can predict what they’ll do when you give them various willpower challenges.

• Glenn Stehle says:

Political and economic entrepreneurs have certainly made an art and a science out of stimulating and appealing to that primitive, reptilian part of our minds.

Have you seen ‘The Century of the Self’?

http://www.rebeldemule.org/foro/documental/tema6848.html

Or ‘Psywar’?

http://metanoia-films.org/psywar/

Or the maker of ‘Psywar,’ Scott Noble’s critique of ‘The Century of the Self’?

***beginning of quote***
V-RADIO: Are you familiar with the BBC documentary “The Century of Self”? Did it influence your making of Psywar?

Mr. Noble:
It did, but not in the manner you might expect. Curtis is an extremely talented filmmaker with an immense repository of archival footage at his disposal (some of which I utilized in Psywar), and he puts out a great product. But I also find that he tends to exaggerate the importance of particular individuals, groups and fanciful ideas in lieu of basic class analysis; he also appears to self-censor, often at critical junctures. I don’t recall seeing the slightest hint of skepticism about the official story of 911 in “The Power of Nightmares”.

There was a great review of The Century of the Self” published by Media Lens. In it, the author quotes a passage from the film:

“Politicians and planners came to believe that Freud was right to suggest that hidden deep within all human beings were dangerous and irrational desires and fears. They were convinced that it was the unleashing of these instincts that had lead to the barbarism of Nazi Germany. To stop it ever happening again, they set out to find ways to control the hidden enemy within the human mind.” (The Century of the Self – The Engineering of Consent, BBC2, March 24, 2002)

The critic goes on to state:

“As you’ll know, if you’ve read Elizabeth Fones-Wolf’s study of the period, Alex Carey’s work, and countless books by Edward Herman, Noam Chomsky, and many others, this could not be further from the truth. Post-1945, as now, the real fear of politicians and planners was the existence of dangerous +rational+ desires and fears – popular desires for equity, justice and functioning democracy; popular fears that unbridled capitalism and militarism would once again lead to horrors on the scale of the two world wars. Freud’s theories were incidental – useful in refining traditional methods of popular control perhaps, but a sideshow.”

In Curtis’ film, Bernays is presented more as a cause than effect. In reality he was joined by all sorts of other like-minded mind managers from the time period: scientists like John B. Watson, the founder of behaviorism, for example, and Ivy Lee, the unsung hero of embedded journalism, crisis management and the press release. Public relations evolved as a means of rescuing corporations from the wrath of public opinion, most notably in response to events like the Ludlow massacre.

The revolution in American advertising was brought about not by a single visionary but by a crisis in capitalism, namely overproduction, which mandated new and innovative ways of marketing products. There were alternatives.
Raising wages and reducing working hours, for example, but corporations were and are mandated by law to maximize profits on behalf of their shareholders.

The consumer society is a natural outgrowth of capitalism, not Freud. Endless growth means endless mountains of junk. To sell it, you have convince people that buying objects leads to happiness.
***end of quote***

25. Carlos de Castro says:

Dear Gail.
Here do you have a system dynamics model that takes technology and economic feedbacks on peak oil:
See our “pessimistic” results: strongly equivalent to yours. In 2008, neither C. Hall nor J. Laherrere understand (may be for my poor english) what you insist in this post.

• Carlos–very interesting report! Your timing seems to be about right too. Everything I can see says we get something like the pessimistic scenario, because of adverse feedback loops.

I don’t think Jean Laherrere follows what I write. He is more interested in computing decline curves. C. Hall does follow what I write, or has when his health permits. He has generally had favorable things to say about what I write.

• Tolstoy's Degenerate Grandson says:

An interesting article co-authored by Laherre. The current situation should come as no surprise to anyone who chooses not to put their head in the sand

THE END OF CHEAP OIL – Global production of conventional oil will begin to decline sooner than most people think, probably within 10 years Feb 14, 1998 |By Colin J. Campbell and Jean H. Laherrre http://www.scientificamerican.com/article/the-end-of-cheap-oil/

26. Don Stewart says:

Dear Gail
I was looking at:
http://peakoil.com/forums/the-etp-model-q-a-t70563-120.html

As I read it, some things began to dawn on me. Oil is used, with about a 20 percent efficiency, to produce the equipment (and the education of the workers?) which is required to produce the oil.

Then the oil must be turned into consumer products such as the travel in an automobile from Point A to Point B. Is transportation similar to agriculture? Does it take 10 calories to produce 1 usable calorie? The answer is probably ‘Yes’. Transportation requires an internal combustion engine which operates at about 20 percent efficiency. But it also requires a vast infrastructure over which the vehicle can be driven, along with law enforcement, fast food restaurants and motels, etc.

The energy efficiency with which a tractor can be produced is not a very good indicator of the energy efficiency of the food produced on a farm and sold in a supermarket and refrigerated and cooked in a home to feed a family. If we take a similar broad look at oil, and considering that it is not very efficiently used in its own production, then we could get negative returns on oil pretty easily. This is exactly what BW Hill’s graphs show.

Hill’s graphs show a very large surplus from oil up until about 2000…the value to the consumer exceeded the fully loaded cost of extraction. Now the surplus has vanished.

Consider what this means in terms of the ‘swing producer’ which CERA likes to brag about. Art Berman’s current blog compares the production and wells in Saudi Arabia with production and wells in Russia and production and wells in the US. Saudi is producing lots of oil with few wells, Russia is producing a comparable amount of oil with significantly more wells, and the US needs a whole lot more wells to produce a comparable amount of oil. The US may be ‘the new swing producer’, but the US is in a totally different situation from Saudi Arabia. Saudi is still reaping a surplus, while the US will struggle to break even. Break even oil production is not something to aspire to.

Check my logic carefully…since this isn’t my profession.

Don Stewart

• Yep, that graphical representation is quite telling about the order of highest to lowest speed necessary at the liquid energy extraction treadmill, i.e. US > Russia > Saudi/Gulfies. The problem is that the overall systemic resiliency looks more like Saudi/Gulfies < US < Russia.

I think the geopolitical aspect will be very important for the shape and mainly sequencing order of events in the finite world question. Look at very recent example, yesterday? there was a big delegation of argentinians in Moscow, they signed deals in new nuclear reactors, hydro, natgas, machinery and defense with the funny point of jointly declaring Malvinas (Falklands) their own at press conference, so quite likely they have now weapons and will to secure these claims.

Now what does this tell you and means in practice?
We can make all the fun about argentinians (and/or other BRICS) love to default each decade or two, but they will keep some industrial backbone to extract, light, heat, manufacture, feed and export for couple of decades to come. In comparison with today perhaps in way lower living standard after global financial system reset Gail writes about to happen soon, but some working core will be there ticking.

Therefore I'm still of the opinion the industrial age will only end when this extension game is no longer possible to keep up, whatever basic level of system still running and that's likely not sooner than 2035-2050. What kind of horrible reshuffling needs take place before that in short term I can't predict, but I maintain it will not be the end yet.

As Greer puts it is no easy task to have one feet in the past/present and the other in the future, but that's exactly what's ahead of us, we need to arrange for that very silly arrangement, possibly through retro future simplification, engage and enjoy the ongoing collapse head on for the rest of our lifes.

• Jan Steinman says:

engage and enjoy the ongoing collapse head on for the rest of our lifes.

Well put! That’s my plan. Isn’t this an interesting time to be alive?

• Glenn Stehle says:

In her speech to the latest BRICS Summit, Cristina Fernández left little doubt that she sees Argentina’s vast shale oil and natural gas reserves — the third largest and second largest in the world ( http://www.eia.gov/analysis/studies/worldshalegas/ ) — as Argentina’s ticket to future prosperity.

And since, after the summit, the presidents of both China and Russia made state visits to Argentina, they apparently agree that Argentina is significant to their futures.

• I would use the word “resources” rather than “reserves”. Whether they can get the shale resources out at a price that won’t kill the economy is speculative.

• Glenn Stehle says:

I agree. That’s the life and death question when it comes to the whether Anglo-American capitalism, or any form of capitalism or socialism as far as that is concerned, can survive or not. And Argentina has an even more uphill battle in this regard than the US does. To wit:

***beginning of quote***
YPF’s CEO said that drilling a horizontal well in the Vaca Muerta can cost $13 to$14 million. In the U.S., a similar well costs a fraction of that, somewhere in the neighborhood of $8 million or less. But even drillers in the U.S. are finding it difficult to be profitable with oil prices where they are now, so it is that much more difficult for Argentina. Still, YPF is reporting some progress. The company said that in 2016 it expects production costs to drop by at least 10 percent. It plans on producing its own frac sand to keep costs down. http://oilprice.com/Energy/Energy-General/Putin-Betting-On-An-Argentinian-Shale-Boom.html ***end of quote*** Drilling and completion costs in the US have adjusted very rapidly to the new market realities, something which may not happen so quickly, if at all, in Argentina: ***beginning of quote*** In fourth-quarter earnings calls, operators initially were looking for prices cuts for services like fracking of around 20 percent. Now those savings appear to be steeper. “We’re seeing costs fall more for fracking than drilling,” Mike Bahorich, chief technology officer at Apache Corp told a CERAWeek breakfast meeting. He estimates Apache’s fracking costs have fallen about 30 percent, while drilling costs have tumbled 20 percent. Gary Gould, senior vice president of operations at Continental Resources Inc said his company, which has its largest operations in North Dakota’s Bakken Shale, had seen service costs “falling most steeply in recent weeks and months.” Analysts at IHS CERA expect fracking costs to fall 32 percent this year, down from a prior forecast for a decline of 24 percent. http://www.rigzone.com/news/oil_gas/a/138237/IHS_CERAWeek_US_Fracking_Costs_Falling_Fast_May_Keep_Fields_In_Play?utm_source=DailyNewsletter&utm_medium=email&utm_term=2015-04-23&utm_content=&utm_campaign=industry_headlines_1#sthash.Xlqgvh9r.dpuf ***end of quote*** Nevertheless, Argentina, Russia and China are surging ahead under the assumption that they can convert those resources into proved developed reserves. • Glenn Stehle says: I wish that Fernández’s speech was available with English bylines, because most of her speech is dedicated to a subject dear to your heart: the intersection of oil and gas with banking and finance. It was at this BRICS summit that the BRICS announced their intention to establish a parallel and competing global banking system to the Anglo-American banking and finance system. And as I’m sure you’re aware from recent news reports, this parallel banking system — the AIIB, the Bank of the BRICS and its mini-IMF — has been successful beyond its founders’ wildest dreams, despite the efforts of the United States to kill it. Even the UK jumped on board, much to the chagrin of the Obama administration. http://www.jornada.unam.mx/2015/04/19/opinion/016a2pol http://www.jornada.unam.mx/2015/04/22/opinion/016o1pol The Anglo-American banking and finance system is in trouble. It is so utterly vitiated and corrupt that practically everyone, except the United States and maybe Israel, wants to see it go. At her speech last week at the Summit of the Americas, Fernández was even so unpolitic to speak truth to power: She accused the Anglo-American banking system of laundering drug money, something that just about everyone in the world, with the exception of diehard American-firsters and exceptionalists, knows. https://www.youtube.com/watch?v=UYwoMO1KCxI So almost everyone outside the United States is in agreement that the Anglo-American banking system needs to go. But there’s a rub, and that is that it is to no one’s interest to see the Anglo-American banking and finance system collapse overnight, because that would be catastrophic for everyone. What behooves most countries’ interests would be a slow and gradual decline of the Anglo-American banking system, while a competing system grows and develops to replace it, or at least to compete with it. But there is no guarantee that this sublime scenario can or will be achieved. There is always the chance that the Anglo-American system will collapse overnight. And if that happens, all I can say is watch out below. • “At her speech last week at the Summit of the Americas, Fernández was even so unpolitic to speak truth to power: She accused the Anglo-American banking system of laundering drug money, something that just about everyone in the world, with the exception of diehard American-firsters and exceptionalists, knows.” That may be the most hypocritical thing I’ve heard all day. Allegedly, the Kirschners are heavily connected with the drug traffickers. Groups like Hamas, Hezbollah and Al Qaeda bring heroin and other products in through the area where Argentina, Paraguay and Brazil meet. She may owe a lot of her wealth and power to trafficking drugs and laundering the money. Perhaps she wants to get the Anglo-American banking system out of the way, so she can get a bigger slice of the pie. • Glenn Stehle says: @ Matthew Krajcik So who is the source of this allegation that the “Kirschners are heavily connected with the drug traffickers”? Or is this another one of those annonymous drive bys that assumes guilt until innocence can be proven? • Glenn Stehle says: @ Matthew Krajcik That’s pretty flimsy stuff, to say the least. What it amounts to is a bunch of unconfirmed rumor and hearsay, spun into a salacious accusatory narrative. Fernández’s allegations, on the other hand, are based on much more substantial evidence. Here’s a sampling: • Bloomberg: “HSBC Judge Approves$1.9B Drug-Money Laundering Accord”
HSBC Holdings Plc’s $1.9 billion agreement with the U.S. to resolve charges it enabled Latin American drug cartels to launder billions of dollars was approved by a federal judge…. HSBC was accused of failing to monitor more than$670 billion in wire transfers and more than $9.4 billion in purchases of U.S. currency from HSBC Mexico, allowing for money laundering, prosecutors said. http://www.bloomberg.com/news/articles/2013-07-02/hsbc-judge-approves-1-9b-drug-money-laundering-accord • The Guardian: “How a big US bank laundered billions from Mexico’s murderous drug gangs” During a 22-month investigation by agents from the US Drug Enforcement Administration, the Internal Revenue Service and others, it emerged that the cocaine smugglers had bought the plane with money they had laundered through one of the biggest banks in the United States: Wachovia, now part of the giant Wells Fargo. The authorities uncovered billions of dollars in wire transfers, traveller’s cheques and cash shipments through Mexican exchanges into Wachovia accounts…. Criminal proceedings were brought against Wachovia…. It paid federal authorities$110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine. More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of$378.4bn – a sum equivalent to one-third of Mexico’s gross national product – into dollar accounts….

“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor….

The conclusion to the case was only the tip of an iceberg, demonstrating the role of the “legal” banking sector in swilling hundreds of billions of dollars – the blood money from the murderous drug trade in Mexico and other places in the world – around their global operations….
http://www.theguardian.com/world/2011/apr/03/us-bank-mexico-drug-gangs

• PBS: “The Salinas-Citibank Affair”

Senior Citibank officer, Amy Elliot, who moved tens of millions of dollars from 1991 to 1993 for Raul Salinas while his brother was President of Mexico, was instrumental in the 1994 money laundering conviction of a former Citibank subordinate….

Her testimony was given in the Brownsville, Texas, jury trial of two American Express Bank International private bankers for laundering millions of dollars for the notorious Mexican drug cartel of Juan Garcia Abrego, who was deported last year by Mexico and is now in U.S. custody….

When she testified, nothing was known about the role she had played in the previous three years in helping Raul Salinas move about $100 million that Mexican and U.S. authorities have now linked to him in bank accounts in Switzerland, Mexico and elsewhere…. Elliott, a Cuban-American, began her Citibank career in the human resources department in 1967 and climbed the ranks becoming head of the “Mexico team” for international private banking in 1983. Her testimony provides a clue to what the top echelons of Citibank knew of the Salinas transactions. http://www.pbs.org/wgbh/pages/frontline/shows/mexico/family/citibankaffair.html • Bloomberg: “FBI Says Cartel Used Bank of America to Launder Money” The brother of the alleged leader of a Mexican cocaine-trafficking cartel used Bank of America Corp. accounts to invest the organization’s drug proceeds in U.S. racehorses, a FBI agent said. http://www.bloomberg.com/news/articles/2012-07-09/fbi-says-cartel-used-bank-of-america-to-launder-money • Huffington Post: “Banks Launder Billions of Illegal Cartel Money While Snubbing Legal Marijuana Businesses” Bank of America, Western Union, and JP Morgan, are among the institutions allegedly involved in the drug trade. Meanwhile, HSBC has admitted its laundering role, and evaded criminal prosecution by paying a fine of almost$2 billion. The lack of imprisonment of any bankers involved is indicative of the hypocritical nature of the drug war; an individual selling a few grams of drugs can face decades in prison, while a group of people that tacitly allow — and profit from — the trade of tons, escape incarceration.
http://www.huffingtonpost.com/avinash-tharoor/banks-cartel-money-laundering_b_4619464.html

• That may be a reasonable way of looking at things. Furthermore, quite a few countries are exporters, and their governments are funded by taxes on oil revenue. Even countries that are not exporters get a lot of revenue from oil production when there is a big gap between the selling price of oil and the cost of extraction. When this disappears (as the cost of extraction rises, and prices cannot stay up high enough), governments need big tax increases, or they need to cut back on services. These problems also tend to push the economy down.

27. Timothy says:

Oh, what a tease Gail! lol Cannot wait for the rest.

28. Kulm says:

Virtually all of the quadrillion dollar derivatives are owned by the 0.1% of the world.

Since they make the rules, they can prop up themselves till the end of time or the moment a Cat 1 civilization is reached. The bubbles won’t burst until they feel it is expedient to do so.

It has to be recognized that, for all practical purposes, about 95% of the world’s 7 billion plus population are economically irrelevant.

• Glenn Stehle says:

The elites “can prop up themselves till the end of time”?

Nah.

Historically speaking, that has never happened. The book to read is Peter Turchin’s “Secular Cycles.”

As he concludes, “Such a happy state (for the elites) cannot continue for long.”

• Kulm says:

Have actually read Turchin, whose analysis only works for agrarian societies.

This is a new game. Uncharted territory.

At that time there were a host of competing societies.

Nowdays there is , for all practical purposes, only one. No competition which means the elites will face no challengers outside of their own circle.

Even if the current elites are toppled it would be just changing the faces, not a fundamental change.

• Glenn Stehle says:

► “Have actually read Turchin, whose analysis only works for agrarian societies.”

Well you must have read a completely different Turchin than I did. Here’s Turchin describing what his work is about:

And here’s Turchin’s lecture at the The Science Network, where he gives a more in-depth overview of his work:

Turnchin would certainly not agree that his “analysis only works for agrarian societies.”

► “This is a new game. Uncharted territory.”

Nah, not for students of the longue durée, which gives priority to long-term historical structures over élite biographies.

Cultural evolution can occur quite quickly, perhaps over a period of centuries or even decades. But we’re still stuck with the same old hard-wiring, which evolved over a period of millions of years. I like how Andrew M. Lobaczewski put it:

“Actually, normal people cannot get rid of the characterstics with which the Homo Sapiens species was endowed by its phylogenetic past. Such people will thus never stop feeling and perceiving psychological and socio-moral phenomena in much the same way their ancestors had been doing for hundreds of generations. Any attempt by [the pathological elites] to make a society subjugated to the above phenomena ‘learn’ this different experiential manner imposed by pathological egotism is, in principle, fated for failure regardless of how many generations it might last.”

► “At that time there were a host of competing societies. Nowdays there is , for all practical purposes, only one. No competition which means the elites will face no challengers outside of their own circle.”

So let me get this straight. The elites have solved their collective action problems, and now act as a one unified group, in solidarity, free of totems, taboos, crosses, blood sacrifices, steeples, mosques, races, flags or nations?

I would say that even a cursory look around the world tells a very different story. Just look at the copetition now underway for Latin America between the US and China, which ‘Dialogo China’ has done a somewhat credible job of heralding in its many articles on the subject. To wit:

“Since China launched its ‘go global’ strategy just over a decade ago, Chinese investors have funnelled upwards of US$120 billion into Latin America, more than any other country or international lending institution. Loans to Latin America have increased more than 20% year on year since 2005.” http://dialogochino.net/china-is-a-major-driver-of-environmental-degradation-in-latin-america/ “Although it owns the largest oil reserves in the world, Venezuela can no longer help its neediest neighbors (such as the Caribbean countries through PETROCARIBE), as it faces growing debt. China has lent the country upwards of US$ 56bn.”
http://dialogochino.net/climate-change-was-a-subject-at-summit-of-the-americas/

Oil prices nosedived in the second half of 2014, and in March Obama announced his intentions to take advantage of the moment to bring about regime change in Venezuela — declaring Venezuela a national security threat and imposing sanctions on Venezuela ( http://www.reuters.com/article/2015/03/09/us-usa-venezuela-idUSKBN0M51NS20150309 ).

Since then, China has announced an additional $20 billion in loans to Venezuela: “There are no indications that Venezuela will default on its debt to China. Although Venezuela has its problems, the Chinese government should continue to support this large and responsible country,” said Wu Hongying, Director of the Latin America Institute at the Chinese Institute of Contemporary International Relations. “Venezuela has the largest oil reserves in the world, and once the price of oil rises again, it will be better able to pay.” It appears that the world’s elites are not all on the same page, acting in unison as you would have us believe. • It depends on whether the electric system continues operating, and the water system, and the banks. Without these, even the elites are in deep trouble. • edpell says: Out here in the gentrified countryside the rich have 60KW of solar and batteries and wells. Yes, in ten to twenty years when things break down they have a problem but they have time to adjust. • Jan Steinman says: in ten to twenty years when things break down they have a problem Rich folk I know tend to be pretty worthless outside their tiny, specialized domain. I’d say their alternative energy systems will stop working within a few years of there not being anyone to call up to come fix it for them. Maybe then I can come get it for salvage value. • Kulm says: Richer folks do know how to hire talents to manage such systems. These people who do the managing tend to be good since their life and survival depends upon the rich guy’s survival. • Tolstoy's Degenerate Grandson says: I would have thought this the other way around post-collapse. What does the rich guy have to offer to the guys who grow his food and guard him? If you look at countries that know collapse such as Somalia and Afghanistan, regional warlords ran the show. This is going to be a situation of extreme violence. Old fat rich men will not do well in this environment. This is not 18th century Alabama we are revisiting. This is the total collapse of civilization on a global scale. 7 billion rats will be scurrying around killing each other for a mouth full of bread or rice. You seriously need to recalibrate your expectations. • I suspect clans will fare among the best. A rich old guy could do pretty well if he has dozens of grandsons with military experience. • Whether or not virtually all of the quadrillion dollar derivatives are owned by the 0.1% of the world, the fact remains that it is the banks that will be caught in the middle if Derivative A defaults and theoretically offsetting Derivative B does not pay (or does not pay quickly enough) to offset this default. The banks are used by businesses around the world, and consumers as well. The banks need to be used to pay our paychecks. While governments bailed out banks the last time around, we can’t count on this this time around–governments are now too indebted, and the losses are likely to be larger. • Creedon says: People have been talking about these derivatives for ever. As I understand it the amounts owed in derivatives dwarfs the world economy. It is hard for me to believe that anyone actually believes they will ever be paid off or that it matter if they are paid off or aren’t. • Kulm says: The most loyal employees, most likely the relatives, would be paid by ‘something’ and the rest could eat dust according to those who actually own something. 29. Kulm says: Those who are well connected think this way. >Finally, if you believe the The Way of Man is the superior way, wouldn’t you want man to succeed to his fullest cognitive potential, creating great technologies and empires, not languishing in caves in a post-apocalyptic world, vulnerable to the whims of nature? And don’t you have faith that men, being that they are responsible for the vast majority of innovations throughout history, would not let or want modern civilization to collapse and would take active measures to delay such a collapse, as humans are the only species capable of contemplating abstract concepts such as fate and mortality? Perhaps modernity is borne out of the innately human desire to avoid death and seek abundance, so humans are wired to invent? So even if everything does come crashing down, as Mr. Donovan wants, civilization would inevitably congeal because that is what humans are biologically programmed do, to reassemble the pieces and start anew, or quoted by author Robert M. Pirsig: It all comes down to whether nuclear fusion can succeed before the collapse occurs. Those who are well connected do not actually put about 98% of the world population into consideration at all. If even half of the world population, owning less than 1% of the world’s wealth but using maybe 25% of the world’s energy, can be reduced to somalian refugee status the end could be postponed for quite a while. • The “catch” is that what the very rich have is paper wealth, and most of this is not real wealth. It is promises of wealth in the future, which will never actually materialize. So distributing those promises will do no good–it won’t be there for the very poor, any more than it is there for the very rich. The rich just don’t know that they aren’t really wealthy. At most what we can divide up is “real” things–apartments and houses and farmland, for example. The farmland today is farmed with big machinery and lots of chemicals. It, in theory could be divided up, but what it would produce with hand labor and less chemicals and irrigation is likely less than today. Houses and apartments could be reconfigured and occupied by more poor people, in theory. But if the poor people really are out tilling the land, the houses of rich people won’t be nearby. And the services that we have today that make the farmland and houses valuable (roads, electricity, piped water) will disappear, hopefully not too quickly. • Don Stewart says: Gail Your statement: ‘The farmland today is farmed with big machinery and lots of chemicals. It, in theory could be divided up, but what it would produce with hand labor and less chemicals and irrigation is likely less than today.’ That is a complicated question which cannot be answered without laying some groundwork. Today, small farms produce several multiples per acre of what big farms do. However, they tend to produce a variety of harvests…not just a mono crop of corn or beans. Anytime a farm produces a variety of products, it requires more human attention. And the giant combines and tractors don’t yield nearly as much benefit on a diversified farm. Of course, the giant combines and tractors also compact the soil, doing grievous damage. IF we had followed the advice of people such as Gene Logsden and Wendell Berry and produced 50 million small farmers with the skills to operate diversified farms, THEN we wouldn’t face the crisis of food that we most likely face in the near future. We would, of course, still have had to figure out the socio-political issues surrounding the breakup of the huge monoculture farms. As it is, we face a future where monoculture farms will not work, their soil has been degraded, they are chemically dependent, they cannot work with local markets, and few people have the skills to operate small diversified farms. Don Stewart • Right. If we could do a lot of planning and training, we wouldn’t be in as bad a fix. And we would need a few people for would-be government of the new system as well, I expect, and someone to figure out this aspect as well, since farming alone won’t fix our problem. But people need actual land to practice on, and current farmers want remuneration for selling their land. There is a high cost involved of doing this on any reasonable scale. And it takes quite a while. So we have what we have. • Jan Steinman says: But people need actual land to practice on, and current farmers want remuneration for selling their land. There is a high cost involved of doing this on any reasonable scale. And it takes quite a while. So we have what we have. Our alternative model of land-sharing has not been the no-brainer I thought it would be. I thought we’d have a waiting list by now. Times are not yet hard enough for people to co-operate at a fundamental level. • Jan Steinman says: few people have the skills to operate small diversified farms. Thank you for noting that. I fear a lot of people have last-minute plans to “get back to the land.” Low-input, self-sufficient, sustainable organic farming is hard! You don’t simply pick up your bug-out bag and head for that piece of land you bought “just in case” you needed it. It takes daily observation, practice, and feedback. And even then, many days have me mystified that all my tiny pepper starts died, for example. I daresay making bits do what you want them to do in a computer (arguably, mankind’s most complex creation) is trivial in comparison to feeding yourself. • Don Stewart says: Dear Jan A friend of mine designs ‘bug out places’ for rich people in Dallas and Houston. He says that they expect a turn-key operation. They want to know nothing about it, just let him do it, and they will, somehow, go there and survive when TSHTF. He takes their money….without raising delicate questions about learning all the skills needed to actually operate such a place. Don Stewart • Jan Steinman says: He takes their money….without raising delicate questions about learning all the skills needed to actually operate such a place. Seems a tad unethical. My approach would be to paint an absolutely bleak worst-case scenario, while praising their superior intellect and foresight, and noting that only the best and brightest are going to make it. That would seal the sale. Perhaps not so much less unethical… 🙂 • “He takes their money….without raising delicate questions about learning all the skills needed to actually operate such a place.” As long as the place is stocked with a couple years worth of food, and some decent reading materials, they’ll be better off than most. • Don Stewart says: Gail A striking example of the difference between a small farm and a giant monoculture farm just came across my screen. http://growyourowngroceries.org/most-overlooked-homestead-tool/ Marjorie Wildcraft tells you what to look for in buckets, your most essential survival tool (although some would argue for a knife). This is just about the opposite of a giant tractor. But…at the end of the day, giant tractors are destructive while buckets are net positive. In the longer run, buckets made from basket weaving material may return as a handicraft. Marjorie grows almost all the food for her family on a very small acreage…she is far more productive than a typical large scale farm. At the end of the video, you see her experiments with non-electrical air conditioning. Stay tuned for that. Don Stewart • Glenn Stehle says: Someone else who defied the Green Revolution, more out of necessity than desire, and lived to tell about it was Cuba: “The Power of Community. How Cuba Survived Peak Oil” • “Someone else who defied the Green Revolution, more out of necessity than desire, and lived to tell about it was Cuba:” Except they turned their backs on it as soon as possible. Instead of upgrading to better pedal-powered vehicles, at the first chance they began switching to cars, trucks, tractors. They will have to re-learn the lessons soon enough. • Glenn Stehle says: I have no idea how many of us, even if freed from the duress of modern advertising campaigns, would go the Gauguin route and voluntarily opt for a primitive lifestyle. Here’s how Bryan Ward-Perkins explains it in ‘The Fall of Rome and the End of Civilization’: http://i.imgur.com/DaS3fNJ.jpg • Jan Steinman says: I have no idea how many of us… would go the Gauguin route and voluntarily opt for a primitive lifestyle. I think there may be three sorts in the long run: 1) the ones who joyously embrace a “primitive lifestyle” that they and their surrounding community can maintain into the foreseeable future, 2) those who are forced kicking and screaming into a “primitive lifestyle” by unemployment, deflation, foreclosure, eviction, etc., 3) those who own and control the “primitive lifestyle” means of production, such as large landholders, fiefdoms, etc. who will employ those in #2 for just enough resource to keep them from starving. Which group are you planning to be in? Or is my model fundamentally flawed? • Glenn Stehle says: @ Jan Steinman When I talk about a “primitive lifestyle,” I’m not talking about a feudal lifestyle, but something more ancient. Many people in “developing” nations are fighting and dying to preserve their primitive lifestyles, as Arundhati Roy has so eloquently written: **beginning of quote** A few weeks ago the Indian government announced its plans to raise 26,000 paramilitary troops to mount a military operation against Maoist ‘terrorists’ in the dense, mineral rich forests of Central India. For decades now the Indian Army has been deployed in States like Nagaland, Manipur, Assam and Kashmir where people have been fighting for independence. But for the government to openly announce the militarization of India’s heartland is an official acknowledgement of civil war. The Operation —which incidentally, is what wars are called these days—is scheduled to begin in October, when the monsoon rains come to an end and the rivers are less angry and the terrain more accessible. The people who live in these forests, including the Maoists who see themselves as waging war against the Indian state, are tribal people, the poorest people in the country. They have lived on these lands for centuries with no schools, no hospitals, no roads, no running water. Their crime is an old one — they live on the land that is rich with iron-ore, bauxite, uranium and tin, all of it desperately desired by major mining corporations, among them Tata, Vedanta, Essar and Sterlite. The Prime Minister has declared that his government is duty bound to exploit India’s mineral wealth to fuel India’s economic boom. He has called the Maoists the ‘single largest internal security threat to India.’ In the corporate press words like ‘stamp-out’ and ‘exterminate’ are commonly used in discussions about what ought to be done to them. http://www.literaturfestival.com/intern/reden/arundhati_roy_engl **end of quote** • Glenn Stehle says: @ Jan Steinman And something very similar to what is happening in India is also happening to the indigenous communities in Mexico: ***beginning of qutoe*** At the heart of the conflict in Mexico, said the older de la Cruz, is violence in the service of privatization. “In Mexico, they’re repressing us because we oppose privatization,” he said. “The government is leading the privatization of water, the privatization of mines, the privatization of oil, the privatization of everything.” “What’s next?” he asked rhetorically. “Are they going to privatize the air? That’s why they’re repressing us, because they need to get us out of the way to keep privatizing.” http://www.thenation.com/article/204889/how-desaparecidos-ayotzinapa-have-sparked-us-mexican-solidarity-movement ***end of quote*** • edpell says: Glenn, thank for the post on India and Mexico. I did not appreciate that the killing of indigenous people for land and resources continues to this day. Doesn’t make it into the MSM. • Tolstoy's Degenerate Grandson says: As Gail has pointed ou tin the past, Cuba was never completely removed from BAU. To find places that are completely off BAU you need to go to very remote regions such as the Amazon or Papua. Places where they have virtually nothing that was produced by the outside world. Cuba was never that. And isn’t it interesting how the Cubans appear not to have enjoyed living a dialed back lifestyle. They could not wait to rejoin BAU as a full-fledged member. Seems it is in our nature to aspire to an easy life. Proper houses, good food, advanced medical care, and not having to grind away in a field does have an appeal. • Jan Steinman says: The Power of Community. How Cuba Survived Peak Oil Good film. Videographer Greg Greene went on to do End Of Suburbia and Escape From Suburbia (featuring yours truly). Cuba is not a shining example. Times are not exactly rosy there, as Cuba’s detractors are quick to point out. But who knows how bad things would have been if they had not aggressively “de-industrialized” their agriculture. • Artleads says: Fabulous films! The Cuban one was close to full length: • Kulm says: Cuba might have survived the peak oil but it is now being conquered by the mighty US$.

The land owners who fled will return with a vengenance and the goons from Blackwater, etc.

• Glenn Stehle says:

I’m not so certain that is a foregone conclusion. As Cliff Durand wrote recently:

***beginning of quote***
Many observers expect a flood of US businesses into Cuba. But they forget that the embargo is still in place. Obama has relaxed aspects of it, but ending it would require congressional action – not a likely prospect in the near future. In any case, Cuba has been very open to foreign investment for 20 years. Cuba recently enacted a new law on foreign investment designed to make it more attractive to investors from abroad. US corporations are eager to get a piece of the action that the embargo has long denied them. But when they are able to get in, Cuba will no doubt apply the same kind of limits as it does on other foreign investment. That means the corporations will be in partnership with the Cuban state and for a specified number of years. Cuba is not about to give up its sovereignty.
http://www.truth-out.org/opinion/item/30209-whither-cuba
***end of quote***

And did you see Raúl Castro’s speech at the Summit of the Americas last week? It was completely defiant, with not the slightest hint of submission to US domination:

The Monroe Doctrine is dead. The Cold War is dead. China and Russia have entered Latin America in a big way. But this time they didn’t bring their missles, but their checkbooks and a completly new banking and finance system to compete with the Anglo-American banking and finance system.

• Jan Steinman says:

Marjorie Wildcraft tells you what to look for in buckets, your most essential survival tool (although some would argue for a knife).

I’m constantly harvesting these suckers!

Marjorie advises to make things last as long as you can. We “grade” our buckets.

They start out as “food grade,” for picking blackberries, basil leaves, lettuce, etc. I jealously guard these and carefully rinse them (and hide them!) after each use.

Then at some point, they become “animal grade,” and we used them for watering and feeding animals.

They then degrade to “dirt grade,” where anything goes, but I still try to keep them somewhat clean and upended so they don’t become mosquito factories.

After washing ten kilos of started-out-clean basil that was picked into a dirt-grade bucket, even city-folk WWOOFers begin to see the light.

• zencat#3 says:

Buckets , sigh, some call me a hoarder. How many buckets are too many? They are so fascinating they have a million uses and they are free!

I owned a farm that was 10 miles from the nearest town. An old lady from there went to my church. She told me during WW I she would ride a horse drawn wagon with other men and women out to this land to cut seed potatoes by hand. This would have been in the month of January and even in north Florida it’s cold in the mornings. People are capable of many hard things. They just have to be motivated.

• richard says:

“The rich just don’t know that they aren’t really wealthy”
Allegedly, Donald Trump once pointed to a homeless man begging in the street and noted that the homeless guy had the greater net worth. They’re like supermodels – they know their wealth to the nearest gramme.

30. Geoffrey Zeger says:

Great article, Gail. Keep up the good work.

31. Glenn Stehle says:

I would argue, however, that it might be germane to Gail’s theory. It very well could be part and parcel of a collapse of society and its civilatory values.

As John Gray has noted: “Because this myth of the self-regulating market — the invisisble hand — has hit the buffers, all kinds of new movements, or old movements under new forms, are emerging. And many of them are toxic: xenophobia, hated of internal and external minorities and anti-semitism. The classical toxic poisions, that’s what always happens, tends almost invariably to happen, when a ruling myth of this kind, in this case a sort of secular myth of economic improvement, is not intellectually challenged but shaken by events. I think the one thing we can be sure of is that it wouldn’t be a rational rebirth of social democracy.”

• richard says:

Most people miss the point that Adam Smith’s “Invisible Hand” came from his treatise on moral values – not from “the Wealth of Nations”. It’s a small step from there to get into religious beliefs. Peak oil is much easier to think about.

• I don’t know if the story is true. I do know that scientist are much better at looking at the planned direct consequences of an action (taking vitamin supplements, fracking for oil) than they are at figuring out what the unintended indirect consequences really will be. This is why we get a huge amount of bad advice from well-meaning scientists.

By the way, one copy of your link is a great plenty. This isn’t even a climate site.

Humans are always striving to do better. Now there are over 7 billion of us trying. People with money want more, people with power want more. Who says to themselves, “I want less for my children than I had”? There may be a few but the children usually escape and start working to better themselves. It may all end badly but how do you change human nature?

• “It may all end badly but how do you change human nature?”

With a DNA altering virus maybe.

• Kulm says:

Actually we are not too far from that.

• Glenn Stehle says:

Well actually, the notion that history is linear (always inclining upwards) and not cyclical is unique to Western Civilization. As John Gray notes: “For the Greeks and Romans as for the Indians and Chinese, history has no overarching meaning. It is a series of cyces, no different that what we find in the natural world.”

• Once we are alive, we also want to keep living. If medical care is available we want to have it, whether or not the cost is vastly disproportionate to any benefit it could possibly give.

• edpell says:

Gail, if you mean health care paid for by the government then yes I and everyone want all we can get. If you mean health care paid for out of my children’s inheritance I have my limits I only want a “reasonable” amount.

33. kesar0 says:

Dear Gail,
Excellent article, as always.
Regarding the “Really need an update on the entire story of economists” part, I have a few suggestions:
– there are many narratives, depending on the school you take into cosideration. A few of them are narrative (liberl/neo-liberal, austrian/monetarism) and
– some other are based on mathematical models (actual econometric models used by statistical organizations, science institutes, schools, think-tanks, corporations, fiancial market institutions like insurers, rating agencies and most importantly banks).
http://en.wikipedia.org/wiki/Economic_model

These models are trying to describe the economy in mathematical language. There are many of them, each really powerful organization has more or less sophisticated system of models. For example corporations (micro-economic level) use simple business case models in excel, including some simple formulas calculating expected profitability of the project/investment/organizational transition based on some quantified assumptions.

The other have goverments, mostly based on the most influential silo (either national statistical organization, banks, employer’s/corporate organizations/civil or military intelligence).
http://en.wikipedia.org/wiki/Computable_general_equilibrium – this one was the basis for NAFTA.

Most of them are based on Cobb-Douglas production function
http://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function
If you look at the ‘Lack of microfoundations’ chapter in wikipedia, you will notice lack of connection with reality – no natural resources parameters (like crude oil for example).

The most sophisticated have, as you can imagine, banks. Especially the large ones, on top of the financial pyramid. Lloyd Blankfein (CEO of the Goldman Sachs – the largest full-service investment bank, ranked 16th by market capitalization of 86 billion) famously said “I’m doing ‘God’s Work.” – and he was partially right. These guys really keep the system going for awhile longer, directing the money flow to the “most important/lucrative investment opportunities”. At least this is what they think, they are doing. What really interests me is whether these guys – like Jamie Dimon – CEO of the JP Morgan Stanley – the biggest american bank – knows, what’s coming in a few years – according to what forecast say in your models. Jamie Dimon btw feels, that something is in the air. He said recently: “Some things never change — there will be another crisis, and its impact will be felt by the financial markets.” and ” He says they could allow banks to provide liquidity cash on a “graduated basis” and accept more forms of collateral. “That is, they can give themselves both gas and brakes; i.e., change liquidity rules to fit the environment,” Dimon concludes.” – which means in fact – more subsidies to the banks – which means further “state sponsored financial market”, which is a key to peace and prosperity, i.e. trade. • Thanks! I know that there are models used by many groups, but the critical question is, “Do these models consider limits, and if they do, do they figure out what really will happen as we approach limits?” Do they consider how lack of economic growth feeds back to wages, and how lack of wages feeds through to commodity prices? How economic growth is connected with energy use (supply and demand)? How this economic growth will be used–how much will be left after paying back debt with interest? How the derivatives market will fare, if we go into another deep recession? I know that in the insurance industry, there is an awfully lot of belief that what we experienced before is what we should expect in the future. Forecasting turning points is difficult. So the tendency is to forecast something that looks a lot like “more of the same” regardless of what happens. • kesar0 says: “Do these models consider limits, and if they do, do they figure out what really will happen as we approach limits?” Key question. Considering the behaviour of the market participants, I would say unlikely. On the other hand, even if their models say exactly what you say, what can they do? Start the panic and bank runs already? Not very pragmatic. • Exactly! What governments can do is try to put off crashes for a while, and they were amazingly successful after the 2008 crash. But how long they can keep it up is a question. • kesar0 says: Musical chairs game as always. But this time the number of chairs will be very limited after the financial crash. • richard says: It is quite difficult to give a well structured reply to the broad spectrum of questions raised here on the interaction between energy and finance, so if some of this seems cryptic, apologies. Modelling and forecasting are different. Martin Armstrong is a forecaster. His AI system forecasts events based on capital flows, and the systems’s assessment of economic confidence. He confirms his 1998 forecast of a financial crisis at 2015.75, and IIRC that capital will flow to the US Dollar strengthening it against weaker currencies. Models of economic systems often exclude banks and debt. The Keen-Minsky models include both, and some include productivity. The focus of these models to date is the interaction of stimulus to the economy with a view to explaining past financial crises, and perhaps to assess the risk or stress within the systems. It seems reasonable to model limits to resources as decreases in productivity, however, all models can only give approximations to valid results within their design limits. As a “for instance” of limits, and in regard to pension funds, zero interest paid on government “paper” means infinite liabilities for the pension funds. Maybe I’m missing something, but it seems that even if we had perfect foreknowledge, would we collectively be any better off? • Glenn Stehle says: Worth repeating: “Models of economic systems often exclude banks and debt. The Keen-Minsky models include both, and some include productivity. The focus of these models to date is the interaction of stimulus to the economy with a view to explaining past financial crises, and perhaps to assess the risk or stress within the systems. It seems reasonable to model limits to resources as decreases in productivity…” • richard says: To be clear: The business as usual (BAU) seems to be working correctly, hence I’d want to be sure that any investigative work is not merely a repeat, hoping for a different answer. And some things are possible without a load of work … for example Time is also a resource, and 20 years seems a reasonable time frame to look at economic performance. Minerals, including oil and gas form some ten percent of world gross national product. If a decline in productivity of five percent per annum in the minerals sector is to be modelled, then in broad terms twice the resources will be devoted to retain broadly the same energy balance within the economy after twenty years. There are two implications, first, the energy sector will be less profitable, and wages will decline relative to inflation, and price inflation will occur because these finished goods are in demand, though other pressures are also present. The second implication is that labour and capital must move from other sectors over time, falling by some one percent per annum, depending on population growth and productivity improvements. What happens over the anticipated timeframe will depend greatly on the initial conditions, particularly the amount of slack initally available – in a sense, this allows any end-point you desire for : inflation; employment; and debt. Hope this explains what I meant a little better. • Don Stewart says: Richard You really should look at BW Hill’s point about a productivity decline in oil resulting in a 5X reduction in work available from the oil. Don Stewart • richard says: @Don, I doubt we understand each other. I’m saying your decline cannot happen in isolation, and you haven’t figured out what I mean about initial conditions. To be fair, I’m still thinking about that myself. • Don Stewart says: Dear Richard You are correct that I don’t understand what you are doing. I only mention the 5X effect of increases in the work required to produce oil because I have seen BW Hill have a lot of trouble explaining it to people. He said in one of the references I gave, ‘I quit trying to explain it to people’. It’s an unusual loop, when oil has to first be burned (with a 20 percent efficiency) to make the stuff that is needed to drill an oil well and turn the crude into salable products (with another loss to inefficiency). Don Stewart • Glenn Stehle says: ► “Minerals, including oil and gas form some ten percent of world gross national product.” I made a graph of energy expenditures as a share of GDP for the United States for the 1970 to 2010 period. Unfortunately the EIA seems to have stopped publishing this data in 2010, so that is the last year of data I could find. http://i.imgur.com/eT3WPRP.jpg ► “If a decline in productivity of five percent per annum in the minerals sector is to be modelled, then in broad terms twice the resources will be devoted to retain broadly the same energy balance within the economy after twenty years.” On that graph I also plotted energy consumption per capita, which remained essentially unchanged for the 40-year period of the graph. So the “energy balance within the economy” has remained the same. The share of the economy dedicated to produce that energy balance, however, has varied substantially over time, from a high of almost 14% to a low of less than 6%. So looking to the future, and if what H.W. Bush declared in 1992 — that “The American way of life is not up for negotiations. Period.” — proves to be true, then the energy balance will not change going forward. If we assume a cost of production theory of value going forward for oil, a reasonable assumption I believe, even though the cost of production theory of value was obviously not operative in the 1934 to 1982 period, then a 5% annual increase in the cost of production of oil doesn’t seem out of line. So I agree, “in broad terms twice the resources will be devoted to retain broadly the same energy balance within the economy after twenty years.” The bottom line is this: If the non-energy sectors of the economy do not grow, then a larger and larger share of the economy will be dedicated to maintaining the current energy balance. ► “…the energy sector will be less profitable, and wages will decline relative to inflation, and price inflation will occur because these finished goods are in demand…” “The energy sector will be less profitable” and “price inflation will occur because these finished good are in demand” argue against each other. In a market society like ours, the price mechanism at work is typically the market. And the market may very well set the price of oil significantly above its rising cost of production, enough so that the energy sector will be very profitable. If we look at the aggregate economy, however, I would agree that it will most likely be less profitabe and wages will decline relative to inflation. This harkens back to what Adam Smith said in ‘Wealth of Nations’: “In a country which has acquired that full complement of riches which the nature of its soil and climate, and its stuation with respect to other countries, allowed it to acquire; which could therefore advance no further, and which was not going backward, both the wages of labor and the profits of stock would probably be very low.” In Smith’s competition between land, labor and capital, would you agree that it looks like land, which I construe broadly so as to include natural resources, is going to have the final say? Capital and labor can battle it out for a while, like in the post-1973 period when Saudi Arabia began raising the prices of oil (and where capital definitely came out the temporary winner), but in the long run both labor and capital (profits) will lose, as we are seeing now. ► “…labour and capital must move from other sectors over time…” I agree, with two caveats: 1) the current energy balance is maintained and 2) some technolgical revolution in energy production doesn’t occur which reduces the labour and capital costs necessary to produce energy. I think it goes without saying that the highy acclaimed “shale revolution” was no such thing, even though it was billed as such. • richard says: @ Don, Glenn – Instead of jumping into complicated things, I am looking at simple things first, on the global scale, and trying to understand, in the first instance, why oil prices are not rising in a smooth and constant fashion. I chose a five percent decline in productivity because I *think* that is a good starting point to represent how oil fields work. While it is fairly obvious that the 2014-2015 oil price decline is as a result of Saudi political/economic decisions, in terms of how to think about this, I think of it as a sudden increase in capital invested, and not part of a linear dynamic system. So when assessing land, capital, labour, it seems to be not that simple. The other thing to think about is whether the world is now at the beginning, middle or the end of the twenty year period being modelled – and that goes back to the proportion of resources invested in oil production … • “While it is fairly obvious that the 2014-2015 oil price decline is as a result of Saudi political/economic decisions” I would not say that is obvious at all. American production increased, everyone else’s stayed fairly flat (other than I think Russia) and demand failed to grow to consume the new supply, because everyone is maxed out on debt. I do not see any sign that Saudi’s caused this at all. They could have chosen to unilaterally slash their own production and lose market share to maintain price stability, but I would not say that not doing that is the cause of the price collapse. • richard says: @MK – thanks for the correction re the Saudis. I’ve settled on eary 2009 as a good place to begin to review how we got here – near zero interest rate policies with recession, unemployment followed by low (lack of) demand in a trickle up economy. The USA oil industry as the major actor amid high oil prices may be more challenging to assess than I first thought, in part because ZIRP makes the impossible possible. • richard says: @Don – Set aside, for the moment, ZIRP and Hill. Going forward, the upper bound to oil prices is set by direct alternatives in transport – biofuels, or by carbon taxes, perhaps both. Hence, once the present glut dissapates, the flow of oil will be determined by expectations of future profits. If no further exploration or development takes place, then oil declines by some five, or more, percent per year. Scarcity pushes the price up to the upper limit. That generates inflation and all prices rise, including labour. Employment falls amid high wages and low demand. I know that is counterintuitive, needs to be though through, does not include ZIRP and runs counter to Hill’s analysis, but it is a start. • Don Stewart says: Richard See my musings about East Texas and Tulsa and the White House lawn, in a reply I just sent you. Would it be physically possible to produce gas from the Marcellus and oil from Eagle Ford using the technology that made East Texas rich and Tulsa rich? I’m not an expert, but my intuitive answer is ‘no’. That means that we have got ourselves out on a limb, and can’t turn around. We have pursued an oil intensive strategy to produce oil, even to the extent of feeding the workers and financing the operation. The technology is dependent on abundant, cheap oil. Furthermore, from a macro level, the work we are extracting from a barrel for use by the non-oil economy probably IS somewhere around 20 percent. With a two stage process, it probably is around 4 percent. And we know that we are wasting a considerable amount of the work we do with the 4 percent. If you add all that up, you can see why an increasingly financialized business sector doing stock buy-backs to inflate per share earnings and exponentially increasing debt is our current plan. Plus war with Russia. Suppose, for whatever reason, we don’t succeed in getting more cheap oil from Iran or Russia or anywhere else. Will we continue to cannibalize the non-oil sector to subsidize the oil sector? Hill estimates that at the current prices (around 60 dollars), the global oil companies are losing 1.3 trillion dollars. That money is coming from the non-oil sector, wittingly or unwittingly. Some of the commenters here have stated flatly that governments will take every nickel you think you have in the bank to keep the oil sector functioning. Others may think that we face a global collapse…because as Harari points out, we now have one global economic and social system. (I think Gail is in the global collapse camp). If we have a global collapse, the oil system will also collapse. What was the price people were willing to pay for a Roman Legion in the year 600? It was zero. They simply weren’t generating enough income to pay for a Legion. It might well be that some smart Roman general around the year 450 reasoned that there were barbarians out there, and that becoming a mercenary at the head of a legion was a ticket to fortune…surely people would pay what they had to for protection. My conclusion is not a ringing declaration that it will go one way or the other, but instead just a caution that it may all stop working very quickly. I think Greer is wrong in his denial that collapse could happen very suddenly. The thing that is different now is the two-stage production process where oil produces oil which is used in the production of everything else. Photosynthesis kept right on working through the Roman collapse, which helps explain the stair-step decline. But a two-stage oil system may suddenly go dark. Don Stewart 34. Daniel Hood says: In honor of Gail, “Cannon” In D Minor (Two Steps From Hell) https://www.youtube.com/watch?v=XX8-35B1FuE As soon as we get our platform up and running Gail is Queen of Energy analysis! 35. gerryhiles says: Reblogged this on gerryhiles. 36. Rodster says: Gail, it appears you’ve had a slight rethink based on this article and now believe we COULD find a viable substitute for oil, only “IF” the global economy stays together. Did I understand that correctly? OTOH, this image shows how things will ALL FALL APART! https://gailtheactuary.files.wordpress.com/2015/04/16-meadows-limits-to-growth.jpg?w=640&h=474 • Jan Steinman says: this image shows how things will ALL FALL APART! And this graph shows how we’re right on track with the first one. (Funny, they left the ominous “deaths” curve out.) • I don’t think we will find a solution to a finite world. We may be able to make a little biofuel, but that will drive up costs and only work as an “extender” to existing fuels, since properties are not identical. 37. edpell says: I feel people overlook the use of energy to create local systems of higher order less entropy. This is what life does. There is no right or wrong no left or right it is just the defining feature of life, use energy flows to create countervailing entropy flows. That is use energy flowing from high to low (a barrel of oil to slight warm air, a pound of ground beef to a pound of excrement) to do work that causes order (paint the house, plant to field, learn physics, create computer models of the world). 38. Jan Steinman says: Thanks, once again, for “connecting the dots” in a way that others seem to be missing. The “price question” is fascinating. You seem to be aligned with Nicole Foss, at The Automatic Earth, in viewing deflation as the bigger danger, and perhaps the precipitator of collapse. I used to be an “inflationist,” but I’m coming round to Richard Heinberg’s view that it will be a sawtooth: periods of high demand driving high prices, we hit the “glass ceiling” of resource constraints, followed by an affordability price crash, which eventually leads to rekindled exuberance, which again hits the ceiling (albeit, a lower one each time)… lather, rinse, repeat. Do you see such a cycle unfolding, and if not, why? Or do you see the final curtain call looming with the current slump? • Harry Gibbs says: Not to answer for Gail, but it seems to me that debt-saturation and the diminishing productivity of debt will make any further flights of exuberance tricky. • Agreed. These are a big part of our problem. • It depends on how quickly the failure of banks brings the whole system down. I think the most likely scenario is that the next big crash is the last one. We had a big crash in 2008, and were temporarily saved from it. The next one seems likely to be much bigger, and thus to be much harder to avoid the consequences of. My expectation is that oil prices will go lower than they are now, and that debt defaults will start hitting the system. Some of these defaults will relate to derivative bets gone wrong. This will start hitting in the next few months. We should be feeling the effects by late in 2015 or early 2016. Oil production will start going down in 2015, and we won’t be able to get it back up again. I don’t see prices bouncing back up again much, expect perhaps briefly in the next few months (and probably to less than100 barrel), as people speculate that our problems are temporary. I don’t think shale drillers will be able to qualify for more debt, and this will prevent production from increasing again. There will be similar problems with new oil sands investment.

• Glenn Stehle says:

“…the failure of banks brings the whole system down.”

The “whole system”? You rule out the possibility that the Chinese and/or some other banking system could weather the storm, and that only the Anglo-American banking system will collapse?

“We had a big crash in 2008, and were temporarily saved from it. The next one seems likely to be much bigger, and thus to be much harder to avoid the consequences of.”

Did not China “avoid the consequences” of the crash in 2008 just fine? Your analysis strikes me as being overly Anglo/US-centric.

“Oil production will start going down in 2015, and we won’t be able to get it back up again.”

I agree. I believe it is likely that US oil production peaked in December 2014, and it is all down hill from here. But I believe this is for very differet reasons than you do. It has more to do with geology than with finance, because the decline in production was already baked into the cake while the rig count was still Cadillacing along. The bottom line is this: The sweet spots in the Eagle Ford and Balkan were already drilled up, and the decline in production was not long in coming, even if the rig count had not fallen. If production peaked in December 2014, then production had already peaked even while drilling and completion activity was still high. One must remeber that the completion process takes several months after the drilling rig is moved off the location.

http://fuelfix.com/files/2015/01/us-rig-count-baker-hughes.jpg

“I don’t think shale drillers will be able to qualify for more debt, and this will prevent production from increasing again.”

Well actually, as Bloomberg reported recently, shale drillers are having no trouble whatsoever attracting capital.

http://i.imgur.com/2WsgxI8.jpg

As Blomberg goes on to explain:

“One of the biggest mysteries of the oil market crash is why the money hasn’t dried up. The collapse in crude prices was supposed to devastate companies and spook investors after wiping more than $200 billion off the balance sheets of U.S. and Canadian producers. It didn’t. “As industry luminaries gather at the IHS CeraWeek Energy Conference in Houston this week to ponder the implications of$50-a-barrel crude, the money keeps piling into oil, with hedge funds, buyout firms and asset managers rushing to claim a spot at the table.

“ ‘There is just so much money,’ said Gladbach, who noted that more than $100 billion has been raised and set aside for energy investments by the likes of Blackstone Group LP and Carlyle Group LP.” http://www.bloomberg.com/news/articles/2015-04-20/investors-who-see-froth-in-market-go-all-in-for-oil But I do agree that production may not increase above December 2014 levels, but this will not be for lack of money, but for lack of sweet spots to drill new wells in. And furthermore, thanks to China and its monetary and fiscal policy, world oil demand is soraring, far more than Washington-Saudi Arabia-Big Oil, what with their drive to talk down the price of oil, would have us believe. As OilPrice reported, the increase in oil demand is growing at almost twice the rate as what Washington-Saudi Arabia-Big Oil are predicting: “According to Cornerstone Analytics, demand is up some 1.7M/D in 1Q15 vs. initial estimates from others of less than 1M/D average rise for the year. So the price drop is clearly seeing a demand response. The recent monetary easing in rates and reserves by China will only help to increase demand further from here.” http://oilprice.com/Energy/Oil-Prices/Saudi-Price-War-Strategy-May-Blow-Up-In-Their-Face.html • We are talking about timing differences here, mostly. Perhaps there is a collapse in one part of the world, say Europe, and it gradually spreads to the rest of the world. I would still call this a collapse of the system. It doesn’t need to be simultaneous everywhere. Every change seems to take longer than anyone reasonably thinks it could. How long can Chinese debt stay together, for example? Perhaps the frequently used “extend (the loan) and pretend (the potential for repayment exists)” approach can be used in China, just as it has in other parts of the world. But at some point, the whole system looks likely to crash. The availability of so much money for investment basically reflects the lack of possibility of making profitable investments. You may have seen the article up now on the Wall Street Journal called, Glut of Capital and Labor Challenge Policy Makers. What has been happening is that there is a huge cutback in expenditures on digging oil wells, building LNG plants, building factories, and a whole lot of other things, because there is no possibility of making a profit if such an investment is made. The money sits on the sidelines for this reason. The underlying reason is that at a high cost of oil and natural gas extraction, it is not possible to find investments that will yield enough return to justify investment. This issue is probably worthy of an article. What we need is lots of cheap-to-produce energy to match our infrastructure, and we still don’t have it. The result is that the economy is not growing fast enough to justify more investment. We will need to see whether Cornerstone Analytics forecast comes true or not. Someone just posted a link showing that the indexes that show whether manufacturing is contracting or expanding showed reductions in the world’s six largest economies in March. Shrinking manufacturing is not a good sign. This is a link:http://www.bloomberg.com/news/articles/2015-04-23/we-just-got-disappointing-manufacturing-data-from-all-around-the-world • Glenn Stehle says: ► “How long can Chinese debt stay together, for example? Perhaps the frequently used ‘extend (the loan) and pretend (the potential for repayment exists)’ approach can be used in China, just as it has in other parts of the world. But at some point, the whole system looks likely to crash.” I certainly agree that China cannot avoid collapse operating under its current paradigm, which strikes me as being simiar to American-style ‘democratic capitalism.’ However, I hold out the possibility that it will be in some place like China, which doesn’t have the same cultural heritage as the Occident, that will have the greatest chance to break out of its current paradigm into something more workable for the future. The chances of such a paradigm shift in the Occident, I acknowledge, are almost zero. Nevertheless, I don’t see a concomitant collapse of China along with the Occident as something written in stone. ► “What has been happening is that there is a huge cutback in expenditures on digging oil wells, building LNG plants, building factories, and a whole lot of other” things, because there is no possibility of making a profit if such an investment is made. True. But only at current prices, which very few believe will be long-lasting. And furthermore, it is becoming more obvious by the day that there are three groups — Big Oil (as opposed to Little Oil), Saudi Arabia and Washington — who desire an extended period of low prices, and are doing everything in their power to insure prices stay low for a while longer. The most blatant action in this regard has been taken by Saudi Arabia, which in March increased its oil production by something like 800,000 bopd: http://i.imgur.com/OklbP0y.png The three actors — Big Oil, Saudi Arabia and Washington — have a littany of motives behind their drive to maintain low oil prices for a while, ranging from proximate economics, to national internal politics, to geopolitics. And the combination of motives for one might not be the same as the combination of motives for the other two. For example, here is an example of a proximate economic motive which reveals why Big Oil wants prices to stay low for a while: “It’s a bit early for me,” Total’s CEO Patrick Pouyanne said, providing a bit of insight on Total’s strategy. “The opportunities will really come if oil prices remain low over a longer period. Then you will see real opportunities for major companies like Total.” http://oilprice.com/Energy/Oil-Prices/How-The-Majors-Are-Playing-The-Oil-Price-Slump.html One must remember that Big Oil (major integrated transnational oil corpraitons) have downstream refining and marketing operations which become extraorinarily profitable when oil and gas prices are low. This is quite the opposite of Little Oil (independents which operate predominately within the national borders), which have no such downstream operations to cushion the blow of low upstream prices and profits. The bottom line is that there are other causes which could explain low oil prices, other than your theory. ► “We will need to see whether Cornerstone Analytics forecast comes true or not.” I could be wrong, but I read that as Cornerstone recording the history of things that have already occurred, and not making predictions. • zencat#3 says: China at least has production. In the the long term they are facing (ahem) difficult resource problems like everyone but their financial system may have more substance. My impression is that China has come a long ways in technology. Yes they can make total low ball stuff. They can also make some high quality stuff. Their financial system may well not have a sound foundation like (ahem) others but alt least underneath their is technology, talent ,labor, and a means of production. Gail having just returned what was your impression, not your fathers China or 3rd world with a dab of tech? • Tolstoy's Degenerate Grandson says: China is building things like massive ghost towns and is effectively bankrupt due to the colossal scale of mal-investment. The PBOC is printing money hand over fist and the banks are loaning that to insolvent entities that use it to make interest payments on loans they will never be able to repay China is a disaster waiting to happen • Tolstoy's Degenerate Grandson says: “Perhaps there is a collapse in one part of the world, say Europe, and it gradually spreads to the rest of the world.” I don’t see how this can be gradual. Recall the Lehman collapse. Within hours the entire global system of trade and credit was brought to a standstill. And only massive central bank intervention undid the end of the world. Also, if Europe goes the global supply chain goes as many key suppliers would be out of business. This surely would result in a cascading effect across the globe The fact that Greece, which is a beaten and starved dog, is insolvent yet cannot be permitted to walk on its debt and start over indicates incredible amounts of fear. Of course if they walk then Spain, Italy, Portugal, France, the UK etc… will all insist debt forgiveness. This would be Lehman times 1,000,000. The horror. The horror. When one of the key countries goes, the ball of yarn surely will unwind. The moment confidence is lost the high frequency traders will hit the sell buttons and the game would likely be over in the blink of an eye. As the green line meets the red line and all hell breaks lose: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/04-overflow/20150423_EOD1.jpg Not to fret, the central banks will continue to bail everything and everyone out until their actions no longer have any impact. And at that precise moment, confidence will vapourize. Interestingly, I think most investment professionals have already lost complete confidence in the system. They understand that the markets are completely rigged. And they join in the fun not fighting the Fed and riding its coat tails. But only a bloody fool would believe the stock market should be going higher when the fundamentals all point to a collapse. Joe public is no doubt feeling a little antsy about the situation, but continues to drink the MSM kool aid – because it tastes better than a bottomless cup full of poison • zencat#3 says: Lehman was intentional.$140 oil was going to collapse industrial civilization so they hit the e-stop. Lehman had stepped on the wrong toes so they were used. The engines were shut down. Theyve never come back up to full power nor do they want them there. We are actually much more stable now albeit at a lower metabolism than 2007, like a animal that has lowered its metabolism to cope with reduced energy input through hibernation.

• Tolstoy's Degenerate Grandson says:

I don’t agree with your point (because oil spiked right back up over 100 soon after Lehman) and even if I did I do not understand how this has an relevance to my suggestion that collapse, when it comes, will not be regional nor gradual.

• Creedon says:

“Not to fret, the banks will continue to bail everything and everyone out until their actions no longer have any impact.” We have to be getting to that point with the EU-Greece situation. Can they continue to inspire confidence for another year, two years, three; it seems to me that the game is already up. The house of cards just haven’t fallen yet.

• Tolstoy's Degenerate Grandson says:

I doubt this hinges on Greece because they can still control that outcome. They will keep the Greeks strapped to the rack but continue to make it appear as if teeth are being torn from the ECB’s mouth as they make funds available to prevent collapse and default.

I suspect the real problem is with things that could spiral beyond their control. China in particular is troubling. If growth really is crashing, and new stimulus has no impact, then the natives will get restless.

Japan is also a danger as it is held together with duct tape and running out of options.

• Gary says:

If climate change isn’t your concern, what more pressing is? Financial collapse and the resultant panic and social anarchy?

• Jan Steinman says:

This will start hitting in the next few months. We should be feeling the effects by late in 2015 or early 2016. Oil production will start going down in 2015, and we won’t be able to get it back up again.

Okay! Guess I’d better go put in some more potatoes.

• Timothy says:

We are going to try potatoes in strawbale this year. Have them soaking up chicken manure right now. Hived new bees yasterday, got strawberries in today, we have to replant them since they were tangled with weeds and some other strawberry chat was the size of a small blueberry and tasteless. I have no idea where those ones came from.

• Jan Steinman says:

Put in a 15 metre (50′) row of sunflowers today. We’ll give them a head start, and when the ground warms up a bit, we’ll plant climbing beans around them.

• David L. Hagen says:

Robert Rapier has been quite accurate on near term predictions and trends. http://www.energytrendsinsider.com/2015/01/08/my-2015-energy-predictions/

• David L. Hagen says:

Glenn
For short term analysis, see the graph of Contango driving storage at http://peakoilbarrel.com/the-eias-international-energy-outlook-2014/#more-7239

• Glenn Stehle says:

That sounds totally plausible, and explains what caused the storage build.

When that oil was put into storage it was taken off the market, so that should have had the effect of raising the price of oil

And when it is taken out of storage it will be put back on the market, so that should have the effect of depressing the price.

And since the US consumes more oil than it produces, the quantities that went into storage had to be imported, which explains the extraoridinarily high imports during the time of storage build.

And as your link explains, since Contango caused the storage build, and Contango has largely disappeared, the storage build should come to a halt. So there will be no storage crisis in 2015. Furthermore, there was never any prospect of a storage crisis in 2015. In the event that storage were to have filled up, the US would have merely cut imports.

• David L. Hagen says:

Glen Well put.

• Creedon says:

You should read Steve Ludlum, debtonomics, inflation and deflation are long term cycles. We have fairly recently started into the deflationary cycle.

39. edpell says:

Gail, as you know I am a fan of computer modeling. A nice student project would be to take the Limits to Growth model and add finance into it. Another project would be to start with the LTG model but make four copies of it that interact. These could represent Asia, Sorthwest Asia (Middle East), West Asia (Europe) and the Americas. No one has looked at what happens if different regions exists.

• kesar says:

What a great idea! I support this in any kind (not too much time and skills in this area, unfortunately). Good luck with this!

• Adding the financial part would take someone who knows what they are doing and is interested in the project. The financial part really needs different areas of the world, I expect, as well.

A few years ago, when some actuarial money became available for a research project such as this, I talked to the people currently working on the LTG model. Basically, they didn’t understand the financial side, so they weren’t interested in doing it. Also, contradicting what they had already done was not high on their agenda, I expect.

• Hi – this is exactly what we are doing. Starting with World3 (updating it), adding in more details on the energy dynamics from Sterman SD model and incorporating the finance-economic SD model of Yamaguchi. So a finance centre for a LtG systems model.

We have it built and are currently working on the parameters to better explore the real dynamics. This is a global level model. In parallel we have a country model (although this is an agent based model) which looks at political risk.

Happy to share more details on this and discuss further if you are interested. See contact details on our website – http://www.anglia.ac.uk/gsi

• kesar0 says:

Seeing ‘sustainability’ word in the first sentence (and almost all paragraphs), I’ve lost my interest to be honest. Do you guys really believe in hypothetical sustainable model of current civilization or you just use it as a honey for sponsors? You can read all the comments and you’ll find out that most of the readers of this blog do not believe in any global nor even societal model to be possibly sustainable. Each run of World3 scenarios ends with slower or longer crash. How can you really use this word? I can’t comprehend this.

• edpell says:

Kesaro, first, they work at the Sustainability Institute; he who pays calls the tune. Second we could be wrong. Third they may discover the position we already believe. If they do, they may discover means to ameliorate the ride down.

• kesar0 says:

You’re right. Hopefully we are wrong. Coginitive dissonance at work.
I just noticed the irony behind the LTG studies and ‘sustainability’ idea.

• PeterEV says:

Hi Ed,

I tend to share some of your thoughts. If you **know** the “Titanic” is going to sink, why not work on lifeboats and iceberg avoidance?

This medical break through is like what Dr. Hirsch said in his seminal report that we know we have a problem with crude oil production and if we start 20 years prior, we may be able to work something out: http://www.netl.doe.gov/publications/others/pdf/oil_peaking_netl.pdf

Here is an example of persistance. How many of us saw this coming? There was a recent “60 Minutes” news hour where doctors at Duke University were able to modify the polio virus and inject the resulting mass into a person who had a brain tumor. I don’t remember hearing the word “cure” but the word remission was there. The main scientist had been working on modifying the polio virus for 25 years and going through all the prerequisite protocols.

My contention is that batteries and solar (and wind) energy are the most likely solutions. There have been some developments in the battery sphere. Here is one clip where the amount of energy per kg can be increased and the cycle life of a battery be determined early on by using calormetric analysis: https://youtu.be/pxP0Cu00sZs Note toward the end where there is is one battery with about 1,000 whr/kg. This is about 5 times current lithium polymer energy density. One of Dr. Dahn’s postdoc students has gone to work for Tesla Motors. So the possibilities are there and some of those possibilities are coming to fruition.

I have read articles and reports where there are people working on batteries of different chemistries that use more common materials such as aluminum (so save your soda cans???).

The other aspect is solar photovoltaics. We seem to be “stuck” at around 15% but with higher rates of around 45% and higher requiring more exotic materials and multi-layers. Still, the amount of electricity I can generate with my array is enough to provide me with enough electricity each mouth for my ‘fridge and a few other appliances. I know this is being worked on.

If I were to add solar thermal heating, I could provide most of my heating and electrical needs throughout the year. The problem is the capital costs due to labor for installing the piping and storage area followed by materials. The idea is to store heat **when** the sun doesn’t shine. This would require a 600 gallon tank or about 700 cubic feet of fist sized rocks and piping under the floor. I live in the SE USA. I would be able, with this existing technology, to provide for most of my heating and electrical needs year round with December, January, and February being almost there.

Here again is the situation where those in a wide swath of the country from the SE USA expanding westward to northwestward where most of the heating and electrical needs could be met by solar. This leaves what remains of our natural gas, crude and coal for our next generations to utilize in a prudent manner.

In order for this to take place, there would have to be a national zoning ordinance to require new homes to be built with solar for the given region. The NE USA may have a rough go of it in the winter with all their overcast and cold air but then our FF usage in not going to stop on a dime.

While I do not think we can stop LTG, I think we can slow, delay, and ameliorate it so that it takes a long time getting here. We have a lot more tech and understanding than the Greeks and Romans.

• Tolstoy's Degenerate Grandson says:

Renewable energy ‘simply won’t work’: Top Google engineers

Two highly qualified Google engineers who have spent years studying and trying to improve renewable energy technology have stated quite bluntly that whatever the future holds, it is not a renewables-powered civilisation: such a thing is impossible.

Both men are Stanford PhDs, Ross Koningstein having trained in aerospace engineering and David Fork in applied physics. These aren’t guys who fiddle about with websites or data analytics or “technology” of that sort: they are real engineers who understand difficult maths and physics, and top-bracket even among that distinguished company. The duo were employed at Google on the RE<C project, which sought to enhance renewable technology to the point where it could produce energy more cheaply than coal.

Even if one were to electrify all of transport, industry, heating and so on, so much renewable generation and balancing/storage equipment would be needed to power it that astronomical new requirements for steel, concrete, copper, glass, carbon fibre, neodymium, shipping and haulage etc etc would appear.

All these things are made using mammoth amounts of energy: far from achieving massive energy savings, which most plans for a renewables future rely on implicitly, we would wind up needing far more energy, which would mean even more vast renewables farms – and even more materials and energy to make and maintain them and so on. The scale of the building would be like nothing ever attempted by the human race.

In reality, well before any such stage was reached, energy would become horrifyingly expensive – which means that everything would become horrifyingly expensive (even the present well-under-one-per-cent renewables level in the UK has pushed up utility bills very considerably).