Why energy prices are ultimately headed lower; what the IMF missed

We have been hearing a great deal about IMF concerns recently, after the release of its October 2016 World Economic Outlook and its Annual Meeting October 7-9. The concerns mentioned include the following:

  • Too much growth in debt, with China particularly mentioned as a problem
  • World economic growth seems to have slowed on a long-term basis
  • Central bank intervention required to produce artificially low interest rates, to produce even this low growth
  • Global international trade is no longer growing rapidly
  • Economic stagnation could lead to protectionist calls

These issues are very much related to issues that I have been writing about:

  • It takes energy to make goods and services.
  • It takes an increasing amount of energy consumption to create a growing amount of goods and services–in other words, growing GDP.
  • This energy must be inexpensive, if it is to operate in the historical way: the economy produces good productivity growth; this productivity growth translates to wage growth; and debt levels can stay within reasonable bounds as growth occurs.
  • We can’t keep producing cheap energy because what “runs out” is cheap-to-extract energy. We extract this cheap-to-extract energy first, forcing us to move on to expensive-to-extract energy.
  • Eventually, we run into the problem of energy prices falling below the cost of production because of affordability issues. The wages of non-elite workers don’t keep up with the rising cost of extraction.
  • Governments can try to cover up the problem with more debt at ever-lower interest rates, but eventually this doesn’t work either.
  • Instead of producing higher commodity prices, the system tends to produce asset bubbles.
  • Eventually, the system must collapse due to growing inefficiencies of the system. The result is likely to look much like a “Minsky Moment,” with a collapse in asset prices.
  • The collapse in assets prices will lead to debt defaults, bank failures, and a lack of new loans. With fewer new loans, there will be a further decrease in demand. As a result, energy and other commodity prices can be expected to fall to new lows.

Let me explain a few of these issues.

The Need For Energy to Operate the Economy

On a worldwide basis, it takes energy to make the economy grow. This is evident, regardless of what time period we look at.

Figure 1. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

Figure 1. World GDP in 2010$ (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

Figure 2. Three year average growth rate in world energy consumption and in GDP. World energy consumption based on BP Review of World Energy, 2015 data; real GDP from USDA in 2010$.

Figure 2. Three year average growth rate in world energy consumption and in GDP. World energy consumption based on BP Review of World Energy, 2015 data; real GDP from USDA in 2010$.

Figure 3. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil's Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

Figure 3. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A, data from Vaclav Smil’s Energy Transitions: History, Requirements and Prospects, together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

There is a small gain, over and above that added by energy growth. This gain reflects the impact of efficiency gains and technology changes. Generally, this additional gain is less than 1% per year.

In recent years, a large share of the world’s manufacturing has been moved to developing countries. This shift gives the illusion that the developed countries can get along with less energy to produce their GDP. This is not really the case. The developed countries find themselves with a need for a large amount of imported goods. Their heavily services-oriented economies tend to grow slowly. This is because, with little energy use, it is difficult for these economies to make productivity gains. I have written about this issue in What really causes falling productivity growth — an energy-based explanation.

Figure 4. Total amount of energy used by Commercial and Industrial Sector (excluding transportation) based on EIA Energy Consumption by Sector, divided by Bureau of Labor Statistics Total Non-Farm Employees by Year.

Figure 4. Total amount of energy used by Commercial and Industrial Sector (excluding transportation) based on EIA Energy Consumption by Sector, divided by Bureau of Labor Statistics Total Non-Farm Employees by Year.

We Run Out of Cheap-to-Extract Energy Products 

The amount of a given energy product (whether oil, coal, natural gas, or uranium) depends to a significant extent on the price available. The wide base on the triangle in Figure 5 indicates that if the price is high enough, we can extract a very large amount of any given energy resource. For example, if oil is $300 per barrel, we can extract the huge amounts of oil that would seem to make it possible for the economy to grow for the next 25 years.

Figure 5. We extract the easiest to extract energy first.

Figure 5. We extract the easiest to extract energy first.

In fact, the IEA has even made projections assuming $300 per barrel oil.

Figure 6. IEA Figure 1.4 from its World Energy Outlook 2015, showing how much oil can be produced at various price levels.

Figure 6. IEA Figure 1.4 from its World Energy Outlook 2015, showing how much oil can be produced at various price levels.

The reason why there is a problem if oil prices rise to very high levels is because wages don’t rise at the same time.

Figure 7. Reason why wages don't grow.

Figure 7. Reason why wages don’t grow.

This situation of lower and lower efficiency at extracting energy, as described above, is sometimes referred to as diminishing returns.

We can look at the problem from the point of view of the worker. He must make choices regarding which things to cut back on if energy prices rise, but his wages don’t rise. The result tends to be recession.

Figure 8. A worker must make choices, if prices of goods made using energy products rise, but his wages don't.

Figure 8. A worker must make choices, if prices of goods made using energy products rise, but his wages don’t. These choices lead to recession.

Figure 9. Examples of discretionary goods include vacations using airline travel, new homes, and new cars.

Figure 9. Examples of discretionary goods include vacations using airline travel, new homes, and new cars. Other examples might include restaurant meals and charitable contributions.

Central Banks Can Fix the Problem Temporarily

If wages are too low to buy “big-ticket” items, lower interest rates and more debt can “sort of” solve the problem. The combination makes expensive goods more affordable on a monthly payment basis.

Figure 10. Comparison of world oil supply and price, as changes are made to interest rates using QE and other changes.

Figure 10. Comparison of world oil supply and price, as changes are made to interest rates using QE and other changes.

Quantitative Easing (QE) allows interest rates to be very much lower than normal. The United States first started using QE in 2008 when commodity prices dropped very low. The combination of the US’s use of QE, and significantly greater borrowing by China to stimulate its economy, helped bring Brent oil prices back over $120 per barrel by 2011 (Figure 10).

Figure 10 shows that, over time, QE has become less and less able to hold up oil prices. The price suddenly started to fall in 2014 when the US discontinued its QE program and China cut back on its growth in debt. Oil is priced in US dollars; the US dollar rose relative to other currencies when the US eliminated its QE program, making oil relatively more expensive for these countries. As a result, citizens of these countries were forced to cut back on discretionary purchases. This is what led to falling commodity prices of many kinds (not just oil) in mid-2014.

Since 2014, other countries besides the US have maintained their QE programs. In fact, Japan and the EU have expanded their programs. Even with very low interest rates, commodity prices remain far too low for most commodity producers to be profitable. This situation could lead to catastrophe because metals, agriculture, and energy are all essential to the economy.

Figure 11. IMF Commodity Price Indices, from September Commodity Market Monthly.

Figure 11. IMF Commodity Price Indices, from September Commodity Market Monthly.

Throughout the ages, there has been a problem with diminishing returns in producing food and other energy products. The standard workaround seems to be greater “complexity.” When complexity is used, specialization and more concentrations of energy are used to try to work around problems. For example, one solution is to make more tools and other capital goods that can be used to leverage the labor of workers. Another approach is to use larger companies with more hierarchical organizations to bring together more resources. For example, if the problem is inadequate food production, perhaps an organized group can build a dam, so that irrigation can be used to produce a greater amount of food on the same quantity of arable land. A third approach is more specialized training for some of the workers.

An unfortunate impact of greater complexity is an increasingly hierarchical society. While some workers benefit, a large number of non-elite workers accrue little benefit. Instead, lagging wages increasingly make the new, better products made possible by a complex economy less affordable.

What Goes Wrong?

There are several things that go wrong:

1. Non-elite workers find it increasingly difficult to buy the output of the economy. Their wages lag behind as more of the wages go to the workers with more advanced training and management responsibility. Because there are so many of these non-elite workers, their “demand” is needed if the prices of commodities are to stay high enough to ensure greater production of these commodities. With only low pay, non-elite workers find it difficult to afford houses, cars, and vacations. All of these use commodities, both when capital goods such as houses, cars, and airplanes are made, and later when these capital goods are operated. Low interest rates may not help these non-elite workers very much, because they lack money for down payments. Without as much demand, prices for commodities tend to fall.

2. Central banks lower interest rates, but not much of the benefit of these lower interest rates actually gets back to the buying power of non-elite workers. Instead, low interest rates tend to lead to higher prices of assets, such as land, existing houses, and shares of stock in companies. Unfortunately, these higher prices of assets do nothing for commodity prices. In order to raise demand for commodities, the buying power of non-elite workers needs to rise, so that they can buy the expensive goods that are no longer affordable.

3. The rate of return on investments tends to fall too low, because diminishing returns lead to ever more energy use (including human labor use) to produce energy products. Since capital goods are made and operated using energy products, the cost of their creation and operation is also raised. Each unit of debt required to finance new capital goods and new energy extraction tends to get lower returns over time. This results in the economy becoming increasingly less efficient, and productivity growth tending to fall.

4. Debt levels tend to rise for multiple reasons. One reason debt levels rise relates to diminishing returns with respect to energy extraction. What is needed when it comes to producing the kind of changes that underlie economic growth (for example, extraction of ores, heating of ores, and transportation of finished products to their destinations) is a particular quantity of energy, as measured in some unit of energy, such as British Thermal Units. If the cost of energy extraction is now five times as high as it was fifteen years ago, the quantity of debt needed to extract that energy may need to be five times as high. If the development process takes 10 years instead of 5, that may further increase the amount of debt required.

It is not only energy products that are affected by the need for a greater amount of debt. Products made using energy products, such as cars and homes, tend to become more expensive as well. If the prices of these products rise, more debt is needed to buy them, as well.

5. Another reason debt levels tend to rise relates to falling interest rates, and the impact that these lower interest rates have on asset prices. With lower interest rates, the purchase of existing buildings becomes more affordable, as does the purchase of shares of stock, so prices tend to rise. Customers buy these items, in the hope that capital gains will give them greater returns than the measly returns available from fixed income investments, and likewise, from new investment in new “productive” assets such as oil wells and factories. Most of this asset-based debt is not productive debt; it is simply obtained in the hope of obtaining capital gains on existing assets as a result of ever-lower interest rates.

6. Relativities among currencies become more important. If the US dollar rises, either because the United States is charging higher interest rates, or because it is not using QE while other countries are, then goods become relatively more expensive outside the US. In this situation, investment tends to fall in countries with perceived lower future prospects–in other words, in countries outside of the US. It becomes harder to keep debt levels up, and thus the buying power of the world economy. Downward pressure on the price of commodities becomes greater because of the loss of debt-fueled buying power.

7. Growth in energy supplies can be expected to slow and eventually begin to shrink, as low energy prices lead to lower new investments. Needless to say, these lower energy supplies adversely impact GDP growth, because of the connection between energy consumption and GDP growth. The countries likely to be affected first by low oil prices are oil exporters such as Venezuela and Nigeria. Many people will not make this connection, because they consider only the apparently beneficial impact of low fuel prices for oil importing countries.

Essentially, the problem being encountered is a physics problem. The economy is a dissipative structure. As it grows, it needs an increasing amount of energy to operate. If the energy is not available, it becomes increasingly subject to collapse. See my post, The Physics of Energy and the Economy.

At some point, we can expect to reach a Minsky Moment. Such a moment involves a major drop in asset prices. We have already reached the corresponding drop in commodity prices that comes with diminishing returns, because fewer non-elite workers are able to buy goods made with commodities, and because of the higher US dollar.

Figure 12. Stylized Minisky Cycle from Wikipedia.

Figure 12. Stylized Minsky Cycle from Wikipedia.

We are waiting now for asset prices to fall to a level corresponding to what these assets can really produce. When this happens, the big drop in commodity prices will transfer back to the corresponding asset prices. For example, the price of land used to extract oil and gas should at some point drop to reflect the lower prices available for these commodities in the marketplace. The price of agricultural land should drop to reflect the lower prices of commodities that can be grown on them, such as wheat, cattle, and hogs. The price of land used to extract metals should drop to reflect the low value of metals. This drop in asset prices doesn’t happen immediately, because everyone assumes that prices are going to bounce back up, and that the system will perform as it always has.

When prices of commodity-related assets drop to a level that reflects their true economic value, we can expect a huge number of debt defaults. This, of course, happens because these assets have been used as the basis for a large amount of debt. It will be difficult to save the financial system, because there will be huge defaults both on bank loans and on outstanding bonds. Banks, insurance companies, and pension plans will all be affected.

Can the Price of Oil Rise above $50 per Barrel?

I am doubtful that the price of oil can rise very high, for very long. Our oil price problem is part of a much larger problem–a slowing economy with low prices for a large number of commodities, including oil. The price of oil can perhaps briefly rise as high as $75 per barrel, but such a high price cannot hold for very long. Rising oil prices tend to lead to recession for oil importing countries, and recessions tend to bring commodity prices back down. The world clearly could not support a price of $100 per barrel before the crash in prices in mid-2014. Once we understand the reason for our low-price problem–diminishing returns and the economy’s tie to the use of energy–it is clear that there is no way out of the problem over the longer term.

In the not-too-distant future, our low commodity price problem is likely to become a low asset price problem. Once this happens, we will have a huge debt default problem. It will also become harder to obtain new loans, because defaults on existing loans will have an adverse impact on the ability of banks to make new loans. Interest rates required by bond markets are likely to spike as well.

The lack of new loans will tend to depress demand further, because without new loans it is difficult to buy high-priced goods such as cars, homes, and factories. As a result, in the long run, we can expect lower commodity prices, not higher commodity prices. Oil prices may ultimately fall below $20 per barrel.


About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,582 Responses to Why energy prices are ultimately headed lower; what the IMF missed

  1. Fast Eddy says:

    Thanks for the new post.

    But before commenting on this … I’d like to take this opportunity to address The Deluge of comments regarding the feasibility of BAU Lite….

    Let’s pretend we can grow food in soil ruined by petro-chemicals —- let’s also pretend that we can wish away spent fuel ponds…’

    My question to the BAU LIte acolytes is …. how does one operate even a low level version of BAU without any energy?

    Do you believe that you will someone be able to extract and refine oil? Will you someone how work out how to keep the coal mines from filling with water…. will the hydro plants still operate? If so I need details…. What about the grid?

    Or do you expect to power this by burning forests?

    Devil is in the detail….

    • Yoshua says:

      Crude Oil Production

      1 Gallon Crude Oil 37.5 API = Energy Content 140.000 BTU

      Extraxtion Cost = 15,000 BTU
      ICE efficiency = 20 Percent
      Extraction Cost = 15.000 BTU * 5 = 75.000 BTU

      Refinery Cost = 10,000 BTU
      Refinery efficiency = 80 Percent
      Refinery Cost = 10.000 BTU * 1.25 = 12.500 BTU

      Distribution Cost = 5,000 BTU
      ICE efficiency = 20 Percent
      Distrubution Cost = 5.000 BTU * 5 = 25.000 BTU

      Total Production Cost = 112.500 BTU

      Total Production Cost = 112500 BTU / 140000 BTU = 80 Percent
      Extraction = 50 Percent
      Refinery = 10 Percent
      Distribution = 20 Percent

      EROI = 140.00 BTU / 112.500 BTU = EROI 1.25 : 1

      The numbers correspond to the numbers from EIA.

      • I don’t get it.

        We use natural gas to extract oil, not oil to extract oil, generally. And the Internal Combustion Engine comes along at the end, with respect to some fuel uses, but not for everything.

        Refinery uses heat to separate out various parts of oil, not ICE. Lots of electricity used by refinery. Electricity definitely not from oil.

        Distribution is mostly by pipeline. Pipeline is operated by electricity. Definitely not ICE.

        You can come up with all kinds of things, but they aren’t necessarily correct. Oil is expensive, so we use as little oil as possible to make oil.

        • I am fairly certain that all of the energy consumption numbers given for electricity are already “grossed up” numbers corresponding to the amount of fossil fuels that would need to be burned to create that amount of electricity, since that is the way the EIA handles electricity generation in its reports. The usual efficiency factor assumed is 38%.

          • Yoshua says:

            I believe that the new jet turbines that use NG as energy source in electricity production are 80 percent efficient. There are still some efficiency gains to make. But are we close to Peak Gas as well ?

            • At this point, natural gas prices are very low in most places around the world. US production of natural gas is down, but my impression is that natural gas production may still be rising elsewhere, despite the low prices.

              The real issue, however, is keeping the entire economy, including the financial system going. Once we have bank problems, natural gas production will fall quickly with everything else, including nuclear. It will become difficult to maintain wind and solar too. I wrote about the falling asset problem in my post. When this happens, all types of energy are affected simultaneously.

        • MG says:

          Yes, we can not view the things separately. In fact, aquiring energy of one type requires energy/ies of another type: you need e.g. sun energy + coal energy + human energy to get food energy, human energy + oil energy + coal energy to get heating energy, or food energy + wood energy + human energy to get human energy etc.

        • Yoshua says:

          I assume that all the tools used to explore and extract oil are produced by using oil, gas, coal, hydro and nuclear. Oil is used to power the tools to a large extent due to the lack of electric infrastructure at remote areas.

          Refeneries use gas and electricity to refine the crude oil. The ICE is not used to refine the crude. They refine crude by heating the crude. (Is it just called a heater ?) The refineries in them self are built using oil, gas, coal, hydro and nuclear.

          Distrubution uses electricity and oil as energy sources. The pipe lines, trucks and gas stations where built using all the above energy sources.

          I don’t know if these numbers are correct, but for some reason they seem to correspond to the numbers from EIA. To tell you the truth, I don’t even know how these BTU numbers for the different stages of crude oil production where acquired. (Did they just pick them from EIA ?)

          • Oil and gas are “co-produced” — come out at the same time. It is fairly easy to skim off the natural gas, and burn it for electrical power. Oil, on the other hand, must go through a refinery first. Oil is also a lot more valuable as an end product than natural gas, so on that basis alone, oil would not be a desirable product to burn. I know that I have seen natural gas burned for electricity offshore.

            I know that onshore drilling rigs can be powered either by diesel or natural gas. This is an advertisement for devices that use field-produced natural gas to power drilling equipment. https://powergen.gepower.com/content/dam/gepower-pgdp/global/en_US/documents/product/Reciprocating%20Engines/waukesha-mobileflex-oilfield-pg-brochure-1.pdf

            Once wells have been drilled, the bobbing pump heads that you often see are powered by electricity. When I was visiting Daqing oil field in China, I asked where the electricity came from to power the many pump heads. They said that it was likely from coal, since that is the major source of electrical production in China. In Texas, the largest source of electricity natural gas, with coal second. Oil is used to power back-up generators in emergency situations, but otherwise it is too expensive to burn to create electricity.

            Refineries use natural gas as a feedstock, when long hydrocarbon chains of heavy oil products are “cracked” into shorter chains. This natural gas is not burned; instead, it becomes part of the finished product. I am not sure it is right to count this natural gas as part of the energy consumption, since it becomes part of the finished product. (The number of barrels of oil rises as well, after the cracking procedure.) The US has been a leader in refining heavy oil products, because it has a large supply of cheap natural gas that can be incorporated into the end products. Thus, the we import a lot of crude oil with the specific intent of using this cracking procedure on it. It has been a profitable approach for US refineries. It is hardly fair to call this a cost of refining US oil. (We extract a little heavy oil in the US, such as oil from Kern County oil field in California, but my impassion is that most of the oil that has this procedure applied is imported oil.) It has no bearing on the cost of refining most US oil!

            It is my understanding that in refineries, the heat comes from electricity. In the US, many of these are along the Gulf Coast. The electricity there is likely from natural gas.

            I do not think this whole approach is worth following very far. Our problem is not that we are running out of energy–even though that is what a lot of peak oilers have thought. We are instead running out of cheap-to-extract oil. The cost of oil extraction involves a lot of things that are not included in EROEI calculations, including interest payments, dividend payments, human wages, and taxes. It depends on whether we can use cheap energy products to make expensive energy products. Timing is very important as well. If money has to be borrowed for a long time, this raises the cost further. EROEI does not consider these things at all.

            • Yoshua says:

              Thanks ! The oil production process is of course a science on its own and the technology is extremely advanced. Someone even said that it’s easy to go into space but the oil production is something entirely different. The oil industry has had the money for a long time to employ some of the brightest people around, so the science and technology should at this point be very advanced. The strategic importance of oil, the money and power has of course also made the industry one of the most secretive in the world.

    • karl says:

      I’ll take the bait. First, let me reiterate that I am not disagreeing that a human ELE is a possibility , but rather that I put a lower probability on it than some of you. Second, when we say BAU-lite, I don’t believe in a renewable powered future where all 7.5billion of us survive.
      I can envision a future where the legacy conventional fuels are used to maintain key infrastructure. Our depleting conventional oil is refined internally for agricultural use, police and military vehicles, coal mining equipment, etc. I think intrastate trade is maintained by trains (part of my enthusiasm for expanded railways is the fact that trains can be run on diesel, coal, or wood). Some trade could be conducted by inland waterway if we rebuilt the canals(you can pull barges with horses)

      Small amounts of manufacturing could be powered by legacy diesel engines running line shafts, or steam engines, and eventually, waterwheels. Eventually, wood will be all there is to burn, and animals and wind will provide transport. I think that, at drastically lower population levels we could cobble together something that looks a lot like 1850 for decades. I have no doubt that 200 years hence we will (assuming we survive) be back at a medieval level of existence.

      • Fast Eddy says:

        I assume you are aware the BAU is going to collapse because we have run out of cheap to extract oil.

        I assume you understand what the collapse of BAU implies. It means total chaos.

        Turn off your electricity for a week if you want a whiff of what the end looks like.

        If we cannot continue to extract and refine energy to keep BAU operational —- then how exactly do we magically do that when the financial system is in ruins… the JIT supply chain has vapourized… the factories that produce parts are shuttered… the mines where the ores come from are abandoned… the smelters no longer have an electricity supply … the grid is not serviced because it cannot be serviced because that requires parts and helicopters and vehicles.

        You need to throw off your normalcy bias.

        As for 1850 do a bit of research — much of the world was facing a deforestation crisis… but alas then came coal…. saving the day….

        Global population in 1850 was 1.2 B … it is 7.4 B now. What do you think is going to happen to the forests when people are cold — what do you think is going to happen to the forests when people try to restart the industrial revolution?

        Again – I am suspending reality and ignoring the fact that 99%+ of all farmland is ruined from petrochemical use — that there are 4000+ ticking nuclear time bombs scattered around the world — so as to engage in a make-believe situation …

        I know it makes people feel better to dismiss the obvious… however

        • psile says:

          Since the end of BAU will come swiftly and without warning to modern-types, most will be caught unawares, being trapped in place, and will be unable to get to the stage where the bulk of the rest of the living world will be consumed in a last ditched effort at their survival.

          People who are succumbing to sickness, starvation and are terrorised by endemic violence and mayhem will not have the mental, let alone physical stamina to attempt such a thing. Plus, they will be shit out of fuel, food and electricity!

          • Karl says:

            Exactly. The diabetic, obese, desk jockey that drives in circles looking to claim the “closest parking spot to the door” trophy isn’t going to grab an axe and a bucksaw and Denude the hinterlands. That will come after the die off.

        • Karl says:

          We haven’t run out of cheap to extract oil, we have run out of NEW sources of cheap to extract oil with which to continually expand the above ground supply and offset individual well declines. Its not like its going to be a full stop. The declining legacy supply of cheap to extract oil can continue to be pumped for decades. I believe there is a difference.

          Look, I am pretty sure it is going to be close to hell on earth too. Chaos, violence, starvation, warfare, etc. My vision of the probable future isn’t what most modern folks would call BAU-lite, they would call it collapse. But I believe authoritarianism can and will exist as a can kicking measure. It won’t work for everyone, but I am willing to bet it will prevent Human extinction.

          Lets assume a complete financial melt down. Martial law will be declared. All of our infrastructure (power plants, roads, railways, sewer systems, etc.) aren’t going to magically vanish. The guys running the critical infrastucture will be instructed to go to work. Perhaps a new script backed by gold or exchangeable at military commissaries is used to compel critical worker attendance. Maybe a spot for their families in militarily guarded “safe zones” compels them. But emergency measures will be tried, and some will likely succeed. Unless all power is allowed to go out and stay out for a prolonged period of time, knocking out military communications and preventing the military from obtaining re-supply, will we be totally collapsed.

          I don’t think its going to work smoothly or work the same everywhere, but historical examples exist. The North Korean elites feasted during the Arduous March. The Russian elites were fine while the Ukrainian holodomor starved millions to death. I don’t have a crystal ball, but short of nuclear war I think SOME type of response will be forthcoming from the government/military even during a fast collapse.

          • if you have societal collapse, governments have no option but to respond in the same measure

            that means martial law–theres no other option.

            when that happens, whoever is president will take control of the military–again, no options

            you better hope it’s not Trump or one of the godbothering lunatics who infest US politics, or you’ll be living in a theofascist dictatorship—-permanently

          • CTG says:

            If you can get killed going to work in a “critical infrastructure”, will you go? Do you have your colleague (who is the expert in one part of the process) who can help you? If he does not go to the office, will your boss fire him? What if there is no salary, will he work? You may be the only one going to work.

            Put it this way, if there is an asteroid coming in to slam earth, will the TPTB let everyone know? NO. Why? because human civilization will be destroyed way before the asteroid hits. Will you go to work knowing very well that all will die? It is 100% certain that a majority of the people will say “Why earn any living when you are dead within a few months?”. So, everyone stops working. Guess what? The banks are closed, the groceries are closed, the planes are not flying, the manufacturing are not producing things. Within 5 days, all hell will break loose and within 10 days, most of the population would be starved and that is probably more deadly than the asteroid itself.

            Up till today, I am still very surprised that some people can just make a comment without taking into account “human factor”.

            “The guys running the critical infrastructure will be instructed to go to work. ” In a power plant, if the IT expert is dead or decide not to turn up for work, do you think you can run the power plant? Do you have security access / clearance to do that work? (i.e. password)? Do you think you can buy the parts that originates from England or Germany? The expert on steam generation, who does the calculation may be dead, Do you think the electric transmission expert can do his work?

            People like to think that XXX can replace the work done by YYY. If the work is very technical, it cannot be. I can tell you. I am an engineer and manager myself. It just does not work !! Things are so complex now, not like 50 years ago where a labourer can be trained to be a fruit picker. It is so hard for me to find a person who can do a job of an expert who left. In fact for semiconductor, we have to do the search GLOBALLY. In the early 2000, Singapore is the only place in South East Asia that has this supply of experts. the next nearest place is Taiwan, China and Japan. You cannot find a meaningful number of semiconductor experts in Australia or even South America.

            It just cannot get into my head that people are either so STUP**D or NAIVE !

            • Karl says:

              “Stupid or naive”, says the proponent of near term human extinction. Got it.

            • Fast Eddy says:

              There were are few other options to choose from … see my earlier post

              We will not not feed the trolls… we will destroy them

            • Karl says:

              “Stupid or Naive troll with suboptimal intelligence quotient” Well, just don’t call me late for supper! Seriously, I’m with you guys on resource constraints, I’m with you on over population, I agree that the financial system is on its last legs, I agree that BAU is going to collapse, I agree that population is going to crash, BUT I express some doubt on whether we are going extinct and whether or not the spent fuel ponds cook off and I cant sit at the cool kids table at lunch? I offer the following for your amusement:

              “Once I saw this guy on a bridge about to jump. I said, “Don’t do it!” He said, “Nobody loves me.” I said, “God loves you. Do you believe in God?”

              He said, “Yes.” I said, “Are you a Christian or a Jew?” He said, “A Christian.” I said, “Me, too! Protestant or Catholic?” He said, “Protestant.” I said, “Me, too! What franchise?” He said, “Baptist.” I said, “Me, too! Northern Baptist or Southern Baptist?” He said, “Northern Baptist.” I said, “Me, too! Northern Conservative Baptist or Northern Liberal Baptist?”

              He said, “Northern Conservative Baptist.” I said, “Me, too! Northern Conservative Baptist Great Lakes Region, or Northern Conservative Baptist Eastern Region?” He said, “Northern Conservative Baptist Great Lakes Region.” I said, “Me, too!”

              Northern Conservative†Baptist Great Lakes Region Council of 1879, or Northern Conservative Baptist Great Lakes Region Council of 1912?” He said, “Northern Conservative Baptist Great Lakes Region Council of 1912.” I said, “Die, heretic!” And I pushed him over.”

            • There is some of that problem around here, I agree.

            • Fast Eddy says:

              ‘BUT I express some doubt on whether we are going extinct and whether or not the spent fuel ponds cook off’

              I assume you do not believe in Santa Claus or the Tooth Fairy.

              I would like to express some doubt about that …. I firmly believe that both exist.

              I imagine you believe 1+1=2

              I would like to express some doubt about that. Just doubt.. nothing more….

              Now you know how I feel when people doubt my extensive findings that indicated well over 99% of all agricultural land will grow nothing when the petro chemicals stop …. that massive amounts of radiation will be unleashed when the spent fuel ponds are no longer hooked up to to BAU…

          • Fast Eddy says:

            We keep using countries that have never collapsed as models for what collapse will look like… Russia… Cuba… North Korea…. none of the collapsed … they always had food and electricity and petrol and police and so on…

            The reason for that is that no matter how much of a mess they made of things BAU was still in full force. They remained plugged in.

            As for remaining cheap oil that does not matter – what matters is that you require BAU to be in play if you are to extract it. You need a financial system and you need the system that provides the parts that ensure the oil gets extracted and refined.

            These parts come from around the world — they are high tech — a single valve is not available and your refinery shuts down. Any one of thousands upon thousands of parts is not available — and you are out of business.

            It is plain and simply not possible to keep the oil flowing without the rest of the system remaining intact.

            • the point being of course that apparent BAU will continue longer in countries that are not democracies

              Only Western prosperity has allowed us to enjoy democracy.

              come SHTF time, democracy will vanish. It has to, because social chaos will require dictatorships backed up with the military—and I’m guessing in the USA that will mean theofascism, given the craziness of aspiring leaders there.

              Months ago I warned that Trump wasnt the problem, but who comes after him—now Pence is starting to loom on the horizon,
              a godbothering nutcase and possible dominionist.

          • I would argue that even oil in Saudi Arabia is now expensive to extract, because the government needs high tax revenue to keep its whole operation going. It is a myth that all we need to look at is the cost of pumping oil out of the ground. Admittedly, the pumping cost is still low, especially in some places in the world. But the issue is, “What is the total cost, including the cost of taxes, dividends, and interest payments.”

      • Explain first where all of the horses, and food for horses, would come from.

        • Fast Eddy says:

          I’ve got a range of weapons locked in my container – the largest is a 308 rifle. I have over 500 rounds for that weapon alone stored in a large lock box. I also have thousands of rounds for the two shotguns and 22 rifles.

          The big rounds will be used for cow and horse hunting…. the small rounds will be used for birds and rabbits and other small game…. the shotguns…. well… those will come in handy for something I am sure….

          Anything that moves and can be eaten — dies.

          That is what happens when the Countdown shop closes … and 99%+ of all land will grow no food when the urea deliver does not arrive.

        • Karl says:

          Well, transport animals would need to be bred. By the time we are back to using them, I am assuming a significant die off in human population, so we would not need to replace the entire US vehicle fleet (246 million). How fast they can be bred depends on the number that survive the human die off. Last year 39.6 million cows and heifers calved (beef and dairy). Half of those calves could theoretically be used as oxen if we didn’t eat them. Call it 20 million. Horses are an order of magnitude tougher, as there are only 9.5 million horses, assuming 4.5 million females, you would have something less than that number that would be capable of breeding. Obviously, Fast Eddy and his horse hunting party would significantly cull the herd, but these numbers show the amount of horse and bovine flesh currently available for breeding.

          • time to rent space on Eddys wall for headbanging again

            • Fast Eddy says:

              So that I too can contribute to the deluge of nonsense being posted I am going a step further… I am going to put my head in a vice and self-crush all logic out of my head…. and then I will fill a large syringe with a mixture of petrol and round up health drink… drive that through my temple… and inject it into the centre of my brain

              Then I will hide behind a tree — and when I see a truck approaching … I will race out at the last second and ram my head into the bumper

              I think that should be enough to allow me to experience what it is like to be a DelusiSTANI.

          • Fast Eddy says:

            Oh but wouldn’t all the hungry kill all the cows before they die-off?

            I have a very powerful rifle and a LOT of ammo for this purpose… I also have some very sharp knives that would be perfect tor slitting the throats of barnyard animals

            Of course nobody else will think of this

            • Karl says:

              If you get your fast collapse, once the lights go out, most of the blissfully ignorant will assume the government is coming to save them. By the time they figure out its time to go scavenging, most of the food in the population centers will be gone. How are they going to get out into the country side to hunt livestock and strip the fields like a pack of locusts with no food, no gasoline, etc.? If a fast collapse happens, most people will starve within a few weeks.

              My point was that we have a huge national herd of potential transport animals alive today. I don’t know how many of them would survive a fast collapse, but we are starting out with a large number. That was my only point, its not like there are only 10,000 alive today, so that there would be NO possible way to quickly increase the herd size.

              Right about now is when I start feeling like maybe I AM a tinfoil hat wearing nut job for even engaging in all of these “what if” scenarios. The bottom line is nobody knows whats going to happen for sure, Not Chris Martenson, Not ASPO, Not Richard Heinberg, Not NASA, Not Dennis Meadows, nobody. If you guys are sure there is nothing to be done, then don’t prepare. I don’t know you guys, will never meet you guys, don’t know your real names. If/when the power goes out, I will never know what becomes of you. I have an obscene amount of food and a pile of guns and ammo because I want to stack the odds in my favor, whatever they might be. If you guys don’t want to fight and strive for survival, so be it. None of us get to live forever, and that is a logically defensible position. Good luck with your choice and God Speed. I plan on holding on to this life to the bitter, bloody end.

    • xabier says:

      Even more risible is the idea of a return to the charms of a ‘World Made by Hand’: think it’s all so simple that ’19th century’ or ‘medieval’ craftwork which people refer to as no more than a ‘basic’ skill-level?

      Consider this: after 7 years of apprenticeship, a wheelwright could make (just) a…….wheelbarrow.

      Not even a dung cart, let alone a proper farm or timber carriage (without which forests are just a theoretical resource.)

      • xabier says:

        Hardly any horses alive today are suitable for the purpose of agriculture/transport and haulage.

        What we have today are not a resource, but quite useless, except as dinner.

        It took hundreds of years of careful selective breeding, -and of breeding humans who knew how to handle them, -to produce the magnificent draught and ploughing animals which were sent to the knacker’s yard post-1945.

        • Fast Eddy says:


          We have done a thorough job of ensuring our extinction … it is almost as if we subconsciously planned to self-destruct. We have cut off every single avenue of escape.

        • Tango Oscar says:

          Spot on with the breed of horses alive today. They’re mostly companion animals, racing animals for our entertainment, or dinner. Almost no horse alive today is capable of doing what we would need of them. Same with cows. There are no oxen available today that can pull a pow without dying in 25 minutes. We’ve bred them to be fat and eat grass so we can then eat them. Outside of aggressive male attack dogs that have centuries of war behind them, like Rottweilers for example, almost no animals will serve any purpose for humans post collapse outside of the supper plate.

          • DJ says:

            Sweden have 600 specimens to start the breeding from.

            I also think we have a few sheeps.

          • Karl says:

            This is false. I know for a fact that the horses the local Amish use to pull their buggies are all ex- race horses. Additionally, cattle are larger now than they have ever been. 3 or 4 years ago I saw many working teams of oxen at the Maine state fair. Even Holstein (a dairy breed) were represented.

            • Fast Eddy says:

              I know nothing of animal husbandry …. but what I do know …. is that when 7.4 billion people are hungry….. they will kill and eat every horse, every cow, every chicken, every dog, every cat, every deer, every moose, and a whole lot more….. to fill their bellies.

            • Tango Oscar says:

              How is a buggy going to be useful post collapse? You’re not going to be able to produce anything to cart around, least of all enough food for yourself and the horses. And I still sincerely doubt that ex-race horses are capable of performing with farm equipment, assuming of course that equipment were to exist in any real quantity in the first place (which it doesn’t).

              Are there a few horses here and there that might be able to perform, sure. I don’t know anyone who does though, do you? I guarantee you don’t if they were to stop using fossil fuels.

              Big cattle also aren’t pulling farm equipment, at least all the cows I see in North America. Those things get so obese they can hardly walk. Again, might there be a 500 or so bovine left in existence that are capable of working all day with a plow? Maybe, maybe not. But I would love to see someone try without fossil fuel inputs.

              So basically what you’re telling me is that on the entirety of the planet of 7.5 Billion humans there are maybe like 52,471 horses and cows that might do a half-assed job at manual labor before their bodies rapidly disintegrate or get turned into dinner. Yay!

              My primary point was that there aren’t enough of these things left to really make a difference and nobody knows how to use them, especially without FF inputs. And I still maintain that the Oxen or horses alive today are but a shadow of their hardy ancestors. They’re all bloated up with GMO feed and antibiotics before taking a drill gun to their likely cancer-infested head.

            • amish horses pull skinny wheeled carts on tarmac roads

              Old transport carts carried 3 tons and had 3 inch wide wheels to avoid sinking intomud

            • I needed to look up tarmac. https://en.wikipedia.org/wiki/Tarmac

              Tarmac (short for tarmacadam[1]) is a type of road surfacing material patented by Edgar Purnell Hooley in 1901. The term is also used, with varying degrees of correctness, for a variety of other materials, including tar-grouted macadam, bituminous surface treatments, and modern asphalt concrete.

              Macadam (crushed rock) roads are prone to rutting and generating dust. Methods to stabilize macadam surfaces with tar date back to at least 1834 when John Henry Cassell, operating from Cassell’s Patent Lava Stone Works in Millwall, patented “lava stone”.[2] This method involved spreading tar on the subgrade, placing a typical macadam layer, and finally sealing the macadam with a mixture of tar and sand. Tar-grouted macadam was in use well before 1900, and involved scarifying the surface of an existing macadam pavement, spreading tar, and re-compacting. Although the use of tar in road construction was known in the 19th century, it was little used and was not introduced on a large scale until the motorcar arrived on the scene in the early 20th century.

              Hooley’s 1901 patent for Tarmac involved mechanically mixing tar and aggregate prior to lay-down, and then compacting the mixture with a steamroller. The tar was modified by adding small amounts of Portland cement, resin, and pitch.[3]

            • i was thinking more of transport/farm carts of the 17th/18th c in europe

            • Ert says:


              “And I still maintain that the Oxen or horses alive today are but a shadow of their hardy ancestors.”

              There is no economic benefit to keep them alive… and keeping the race-genpool going is a lot of work… But there may be still some oxen, etc. pp. alive in the 3rd world. But they may be not very good adopted to out northern climate.

              It is as it is… good this way. To give the survivors some chance the population has to drop drastically in a short time (to avoid further/unnecessary damage).

            • Fast Eddy says:

              That does not overcome the issue of starvation — the third world grows almost all of its food with petrochemical inputs — the oxen will look mighty tasty roasted over a fire when the ribs protrude….

            • DJ says:

              If population drops too fast noone takes care of nuclear etc.

              If population drops to slow all basis for pre-industrial living will be gone.

              Which is the goldilockdieoff speed and extent?

        • I strongly suspect you are correct. Also, different breeds were needed for different climates. I am told that those used in the north had to be smaller, so that the amount they ate did not completely offset the work that they could do.

      • MG says:

        The world in the past was very slow. The movies made today provide false picture of it. As the food was not so abundant as now, the people did not have energy for fast life…

      • Fast Eddy says:

        We would be as helpless in his world… as he would be in ours…

        We make the mistake of believing he has very limited skills…. and likewise he would think the same of us….

  2. Veggie says:

    Thanks again for a very informative view on the problems we encounter. 🙂

  3. moraymint says:

    Thanks Gail – and an alternative title for your latest post might well be, ‘Peak Oil Has Come and Gone’.

    • Fast Eddy says:

      “Big oil companies are no longer trying to replace all their production through conventional exploration, the energy consulting company said in a report published Tuesday.”


      The Mysterious Case of Big Oil’s Disappearing Barrels

      If you ever find yourself at a cocktail party with a bunch of oil executives, one phrase is a guaranteed mood-killer: “reserve replacement.”

      Not merely awkward to say, it is the industry’s bogeyman. Because in a business chiefly concerned with getting stuff out of the ground, you need to replace that stuff pretty consistently unless you want to, well, eventually run out of stuff.

      Last year, the stuff-gathering did not go so well. Not replacing your reserves can be due to several things, such as striking out on a big exploration prospect or simply dialing back investment in finding new fields.


      Granny is now drawing down on her nest egg now…. soon she will be eating cat food…

      • moraymint says:

        Yes, the fact is that 99.99% of the population has little idea of the significance of this epoch in which we exist, the end of The Oil Age. We’re living in a sort of phoney economy at the moment where for most people – in the developed world anyway – life proceeds pretty much as it always has done. However, what people don’t realise is that we’re in that cartoon state where we’ve run out of road, we’ve kept running into the ether, and now – with our legs thrashing 19 to the dozen – we defy economic gravity for a few moments.

        Quite what will trigger the look down and that ‘Oh My God!’ moment when it becomes clear that we really have run out road and the next experience is vertical acceleration downwards at 9.8 metres per second, per second, I’ve no idea. But I imagine it will be debt-related, probably in the form of systemic financial collapse …

        Just thinking out loud …

        • Fast Eddy says:

          I think more people are beginning to realize that something is profoundly wrong…. that this is not another business cycle… that tears are ahead…. they cannot work out what has gone wrong though… I would add that they likely believe hard times are coming … but that there will be a reset …. they would never consider that this could be an extinction event…

          • Unfortunately, it is not good form to use Wile E. Coyote photos in posts. I am sure that they want royalties, and everyone copying the article would need to pay royalties as well.

            • Fast Eddy says:

              It’s worth the risk … 🙂

            • CTG says:

              It is a link to other websites. The image does not reside on your website. It used to be that only the link comes out but with a “newer technology”, instead of links coming out, it is shows the image.

            • I still think that the people who developed images have a right to get paid for their use of their images, whether or not there is software that works around this problem.

              I probably should’t be showing things like Bloomberg charts either, but I don’t do much of it, and I don’t think that there has been as much complaint about this.

      • I expect that there are still write downs to be made next year. I know that Exxon is being investigated for not writing down it oil reserves, when the prices dropped. http://www.bloomberg.com/news/articles/2016-09-16/n-y-said-to-be-probing-exxon-s-valuation-of-oil-reserves
        It may have written down natural gas reserves, but not oil reserves.

        There are not many companies that can make money on $2.50 mcf natural gas. People don’t realize that oil, coal, and natural gas are in pretty much equally bad shape. Uranium, too!

    • I was thinking at one point of including some oil graphs, but decided I needed to save that for another post.

      The data we are getting right now on international energy supplies is pretty sketchy. Information on inventories is iffy. There was a recent story about new satellite data showing that China has more oil in storage than we thought it did, implying that our estimates of China’s consumption were too high. Art Berman and Matt Mushalik have put together an article questioning EIA’s storage supply numbers. http://crudeoilpeak.info/u-s-storage-filling-up-with-unaccounted-for-oil Regardless of whose numbers are used, US oil in storage now seems to be drawing down, implying that we are consuming more than is being produced.

      The international oil production estimates now shown on the EIA website are only through March 2016, even though it is now October. The EIA keeps reasonably up to date information on US fuel production of various sorts, but its information on international coal and natural gas supplies are behind BP’s once-per-year data set.

      My impression is that both world coal and oil production have passed peak. Natural gas production/consumption may be rising, but it is smaller than either coal or gas.

      • Tango Oscar says:

        If U.S. storage is drawing down that should take the slack out of the system and allow us to see what’s actually happening, no? If oil companies aren’t getting the stuff out of the ground at the same rates, prices have nowhere to go but vertical. This would of course crash the economy, if it happens. They’ll have no choice but to unleash helicopter money and a new round of QE from the federal reserve.

  4. gerryhiles says:

    Unfortunately it all makes sense Gail … let’s hope that the PTB don’t use the Samson Option but, anyway, tough times ahead. Not a good period to be young and just starting out in life.

    • By the Sampson Option, I suppose you mean the use of nuclear weapons to destroy opponents. https://en.wikipedia.org/wiki/Samson_Option I think that the earth is fairly resilient when it comes to any kind of attack we give it. The one concern I have is that over time, ecosystems have tended to become more complex and the energy density tends to get higher. Humans have created the most complex ecosystems of all times, dissipating the most energy.

      Chaisson - Energy density

      If we are now failing for many reasons (climate change in addition to diminishing returns with respect to resources), then what type of ecosystem comes after us? I suppose some less complex systems that uses more CO2. This doesn’t fit in with past patterns, but I suppose it is possible to restart at a lower level, and work again toward higher energy dissipation.

      It looks like humans will soon be out of the picture, but we don’t know this for certain. Thus, we don’t like the idea of someone taking the matter into their own hands, with nuclear weapons. Regardless of what PTB choose to do, we have an awfully lot of spent fuel ponds around, and a lot of nuclear electricity that needs grid electricity to restart. Thus, we have a lot of potentially problematic stuff around, regardless of what PTBs choose to do. So perhaps it is best not even to think about the issue. There is not much we can do to fix it (except perhaps move to New Zealand).

      • Fast Eddy says:

        The only advantage I can see to ending the game in New Zealand is that the scenery is better than most other places….

        • Maybe you can get a temporary job working in a movie using the scenery as a back drop.

        • Joebanana says:

          Hi Eddy-
          First post here. New Zealand looks awesome but I love my Cape Breton Island. We do have a lot of social capitol here that I hope makes it possible to avoid at least some of the extreme ugliness that awaits us all.

          • Fast Eddy says:

            I’ve never been but it looks very nice – Newfoundland is on my bucket list….

            • Joebanana says:

              My first post and I spell capital wrong.Yeesh. Anyway, If you decide to come you must stop by. I’ll have you believing in a future of living off the land in no time;-) Actually, I think I could have given it a pretty decent run here but for Point Lepreau over in N.B. Along with all the others.

          • I see that Cape Breton Island is on the east end of Nova Scotia, Canada. https://en.wikipedia.org/wiki/Cape_Breton_Island The Canso Causeway crosses the Strait of Canso, connecting Cape Breton Island by road to the Nova Scotia peninsula. With this causeway, it is not really separate from the rest of Nova Scotia.

            Cape Breton Island used to have two coal mines and a steel factory, but now it is trying to diversify its economy. Tourism is at least one of its industries now.

            My first concerns would be food, water, and energy supplies for cooking/heating. I presume the island has trees that could be cut down for fuel, at least for a few years–not the best idea for the long run. Does it really have easily available food and water, especially without electricity/oil? You are quite a long ways away from population centers, I see, and the climate is reasonably mild.

      • gerryhiles says:

        Yes. I certainly don’t spend much thinking about nuclear war, but the situation in Syria is very serious, so it’s bothered me lately.

      • Tango Oscar says:

        Earth will be resilient in allowing new forms of life to evolve long after we’re gone. That said, a nuclear winter scenario that leads to the direct starvation of everyone else is highly probable if even a few dozen large nuclear warheads go off.

  5. Ert says:

    Thanks Gail for the new blog post in which you summarize a lot of conclusions / findings of your older ones. Everything what I write I can agree upon, as I follow your thinking now for some years already.

    What strikes me, as I also follow the discussions around the ETP Model in German (and other) peak-oil, energy and economy based forums, is that what BW Hill states or explains on how the ETP relates to the effects, causes and what to expect – you both align very, very close – perfect match would even better match what I really feel in my gut.

    So I’m really interested and/or frightened in which time frame from now on we see serious deterioration in the world of finance and the economy – caused by the falling net-energy contribution of the (especially oil-) energy sector. If the timeline on the ETP model charts is any indication, we may expect the beginning of some serious instability latest by 2020. The limitation of the ETP is still that it only looks on oil, not on the other fossils which may prolong or keep up (via energy-subsidy) the game some more years.

    We will see. But the timing is the only thing which is kinda left open up to now – and of core interest to me.

    That we will collapse at some stage – with a growing population and diminishing energy, water, food and other natural resources is a given (predicament) – not a question, theoretical hypothesis or open for discussion.

    • Our biggest problem right now in terms of reduced energy supply is coal, rather than oil, IMO. We are past peak coal. This is true on a “net energy” as well as a gross energy basis. The peak oil community has done a disservice by making the problem look like it is simply an “oil” problem, IMO.

      We have a problem with low prices for a wide range of commodities, including coal, oil, natural gas, uranium, many metals, wheat, and many other food commodities.

      I am doubtful that BW Hill’s model says much at all. He clearly is not thinking about how a networked economy works.

      The question is instead when asset values start falling, and we start seeing a big rise in debt defaults. I know Bank of America is saying that we can expect recession by the second have of 2017. http://www.cnbc.com/2016/10/09/bank-of-americas-recession-warning-this-market-is-scary.html Deutche Bank early put out an article saying that recession typically starts 8 or 9 quarters after a drop in corporate earnings. http://www.zerohedge.com/news/2016-06-04/when-will-recession-start-deutsche-banks-disturbing-answer The fall in commodity prices in mid-2014 led to a drop in corporate earnings. In one historical recession, it took as long as 16 quarters (4 years). That would put the downturn in mid-2018.

  6. Fast Eddy says:

    This is without a doubt the best analysis/summary ever published on this subject.

    I cannot imagine how anyone could read this … and continue to fail to understand that BAU is a cooked goose.

    This is so good that I have decided to award you the Nobel Prize for Economics….

    • Thanks for the compliment. I keep amassing all kinds of stuff, on all kinds of topics.

      My problem is figuring out a reasonable way to organize and present it. Yesterday morning, a reader pointed out an IMF article on Facebook, and made the point that the problem the IMF was missing was diminishing returns. That gave me the idea of how to put the article together, in a reasonable way.

      Still sitting on my desk, I have all kinds of material for starting several other articles.

  7. Gail, you are the best. A consummate intellectual craftsman. Thank you. Treasures!

  8. Charles says:

    Let’s all hope BAU ends. Then maybe our societies will come out of this sick consumerist culture and mindset this is completely destroying the natural world. Our future generations, if there are any (and it doesn’t look likely at this point), will look back at how stupid we were wasting valuable time and resources on things like Facebook, Tesla, Netflix, when there was real work and real lives to be lived. Such a shame we traded convenience for shorter, more fulfilling lives. Peak oil is dead (2009), long live Peak Oil (alive and very well in 2016)!

    • Fast Eddy says:

      When BAU ends… you starve.

      Be careful what you wish for.

    • meliorismnow says:

      Facebook and Netflix require minute amounts of energy compared to most communication and entertainment options. But I agree on the time wasted, if you gave it to the average person in the great depression s/he wouldn’t have had much use for them. Tesla is much more efficient than comparable luxury cars but doesn’t even compare to bicycles which is what most of us will be riding using the most optimistic assumptions.

      • Fast Eddy says:

        ‘Tesla is much more efficient than comparable luxury cars’

        Might I inconvenience you by asking what you are basing that statement on….

        Tesla’s Electric Cars Aren’t as Green nor Efficient as You Might Think

        The math gets trickier, though, when you include other forms of environmental damage. Electric cars need to be light, which means they include a lot of high-performing metals. The lithium in the batteries, for example, is super light and conductive—that’s how you get a lot of energy without adding a lot of weight. Other, rare metals are sprinkled throughout the car, mostly in the magnets that are in everything from the headlights to the on-board electronics.

        But those rare metals come from somewhere—often, from environmentally destructive mines. It’s not just Tesla, of course. All electric vehicles rely on parts with similar environmental issues.

        Rare metals only exist in tiny quantities and inconvenient places—so you have to move a lot of earth to get just a little bit. In the Jiangxi rare earth mine in China, Abraham writes, workers dig eight-foot holes and pour ammonium sulfate into them to dissolve the sandy clay. Then they haul out bags of muck and pass it through several acid baths; what’s left is baked in a kiln, leaving behind the rare earths required by everything from our phones to our Teslas.

        At this mine, those rare earths amounted to 0.2 percent of what gets pulled out of the ground. The other 99.8 percent—now contaminated with toxic chemicals—is dumped back into the environment. That damage is difficult to quantify, just like the impact of oil drilling.

        So … much… more:


        • meliorismnow says:

          I wasn’t making an environmental argument but whatever. Did you stop reading your article halfway through? That is, before its sources admit it’s better for the environment than gasoline based cars? Also, Tesla doesn’t use rare earths in the battery or drivetrain (Nissan LEAF does); their speakers, like most speakers, may (still) use a tiny bit of one (neodymium magnets).

          The real environmental issue with EVs is cobalt, which is primarily sourced in Congo. The official and unofficial mines are devastating water supplies and the smelters are devastating the air nearby. A significant amount is also produced illegally and a significant portion of that is produced with child labor. Feel free to use those issues when you want to dissuade someone on EV Hopium and don’t rely on Wired which can’t bother to investigate the issue.

          No, my argument was about efficiency. Electric motors are almost three times as efficient as ICE motors, don’t need geared transmissions, are hermetically sealed and can last millions of miles. They also offer regenerative braking which not only improves running efficiency but also greatly increases the life of the brakes. Ideally they charge via DC, but even with electrical distribution losses and AC->DC conversion losses they are still much more efficient on a Kwh/mi/lb basis.

          I won’t say EVs can be the foundation for BAU-Lite, but they can supplant the wealthy’s gas guzzlers. Everyone else’s cars are going away whether they like it or not.

          • Fast Eddy says:

            Doesn’t matter how efficient the motor is when you are having to use massive amounts more resources in building one of these idiotic contraptions vs building a petrol car.

            There is a piece of research that I posted on another article about how a Tesla is far more energy intensive in terms of production vs a petrol car… if I recall the numbers it was as if the car had already driven 80,000 km before it moved an inch … whereas for a normal petrol car the figure was 14,000 km.

            The big problem was associated with the 500kg battery. Throw in the reality that the Tesla battery pack – like any battery — will hold less load every year and likely need to be replaced well before the car is in the junk heap — and your efficiencies are toast….

            • meliorismnow says:

              I’d certainly be hesitant to compare it to a motorcycle or even a geo metro, but it’s an easy comparison to other gas-guzzling luxury cars/crossovers. Unless you feel GM is losing money on the $37k Bolt (or a $27k LEAF), it’s clear the process is not much more energy intensive than a regular gas car (which average $32k). Even so, the battery, if cared for (by the car, charger, and user), should have a 15 year usable life in the car (just sell the car if it degrades past your liking), a 10 year life in a stationary setting, and be fully recyclable.


            • Fast Eddy says:

              Whatever you say…. I am sure is true.

              Are you working in the PR department at Tesla – Internet Troll Division?

              If so congratulations – you and your colleagues have convinced the world that a toxic waste dump on wheels — that is totally unreliable — that leaks and squeaks — that would not exist without billions of taxpayer funding ….

              Is going to save the world.

              Step up to the podium for your award:

            • Fast Eddy says:


              One of the immediate questions asked about used electric cars is usually, “Why did they lose their value so quickly?”

              Indeed, compared to similarly-sized gasoline cars, used Leafs are generally offered at a lower percentage of their original sticker price–meaning their depreciation has been high.

              This is due to at least two factors. First is unfamiliarity: With less than five years of history, buyers just don’t know how used Leafs will fare when they’re 10 or 12 years old.

              Second, though, is a financial quirk. Remember that buying a plug-in electric car can qualify you for a Federal income-tax credit of $2,500 to $7,500.

              The first owner of just about every used Leaf on the market, in other words, paid an effective price $7,500 lower than the sticker price–whether that owner was a private buyer or a leasing company.

              When you re-run the numbers using that effective price, the depreciation doesn’t look nearly as bad.

              That will likely depend, however, on one of the biggest unknowns: How long will the battery of a Nissan Leaf last?

              Anyone who uses a cellphone or a laptop computer knows that batteries degrade over time.

              No more Tesla buyback guarantee

              Should I Buy A Used Nissan Leaf (Or Another Electric Car)…..

              Well…. if your brain is withered from smoking too much hopium and you can no longer think straight…. if you spend a lot of time dancing about the fire with other hippies …. if you think it is cool to pull up at the organic coffee shop and flash your ‘green’ creds…. if you don’t mind that your vehicle will collapse in value very rapidly…. if you think 1+1= 7… if you are delusional, stupid, and/or a foolish person by nature…..

              By all means — Do buy an EV!

              Or alternatively you could just burn your hard earned cash on a fire while dancing around with the other stinky yuppie hippies…..

              Federal Income Tax Credit of 7500 bucks —- how wonderful of your neighbours to support the green dream! Maybe EV owners should throw a party inviting all their neighbours and thanking them for donating to the dream…. tra-la -la -la … la land….

    • BAU does have some advantages, though. Some of us would just as soon continue things as they are now.

  9. Fast Eddy says:

    The situation in Syria grows more ominous….

    Was listening to Pravda NZ (radio NZ) earlier this morning and I heard that the British foreign minister is calling for people to march on the Russian embassy….

    Also seeing that Putin is being accused of war crimes and has cancelled a visit to France… also that Russians are being asked to bring their kids home if they are studying overseas….

    It would appear that both sides are dug in over Syria…. neither willing to back off….

  10. Yoshua says:

    Thanks Gail !

    You might just have found the trigger that will take down the system. We have survived so many bullets… The Minsky moment… When all the asset bubbles start to implode… That must be the end.

    • We seem to have lots of things to pick the bubbles.

      There are a lot of people who think that all the debt doesn’t matter, but it really does. It keeps (or at least, used to keep) commodity prices high enough to enable extraction.

      • CTG says:

        These are the people who just don’t have the ability to look at things in the grander scale (i.e. big picture). They just look at the small picture. I have met so many of those in my life.

        You just have to accept that they may have a disability of understanding the big picture. No matter how hard you explain, they will either shrug it off or give you a blank look because they don’t understand what you are saying

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