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. adonis says:

    the elites are slowly shaping the new world order in anticipation of the reshaping of the old economic order the middle-class will cease to exist for the vast majority unless you play your cards right currently the oil price currently sits on about $50 a barrel the qe programs will continue along with war drums beating and oil production freezes or cuts until the elites make their next move which will bring the price to between $70-90 it will have something to do with the climate change agreement ageed to by nations ,once this is all in place qe programs will stop and we will be told how fantastic everything is then the elitist’s conspired timed collapse will hit oil price will probably drop to $40 a barrel with a whole pile of awful consequences for the vast majority of the middle class. the elites are in contol and their masterplan for peak oil will continue for many years if you dont play your cards right you could end-up on the scrapheap what u doing now is getting out of debt not piling on debt

    • DJ says:

      Is this elite kind of like teh El.dErs? Do they have a secret newsletter or how do they coordinate?

      How will their wealth survive then crash?

      • smite says:

        No need to coordinate. Just dominate.
        The “crash”? Am I the only one smelling instadoom now?

        There will be no unintentional “crash”. If there is a “crash” it will be carefully managed by the same supercomputers that run the show today.

        Regarding how their wealth survive the crash: Technology is the tool, mankind the sacrifice. It’s a zero sum game played with big sticks.

        http://2.bp.blogspot.com/-o2CMjbFdOp4/TrHQs_6tCyI/AAAAAAAAAqM/W9dKOk2lmYE/s1600/027112.jpg

        • DJ says:

          Ok, so your version of teh lEdrs are more like ow.Ners of robots like nothing we have never seen that will take global power in a world where money no longer has any meaning?

          Somehow I prefer the theory of TPTB who is joined only by mutual interest and are mostly clueless and hoping for decoupling or a technological breakthrough kicking growth alive and initiating a return to normalcy.

        • Fast Eddy says:

          You are back with a vengeance…. did you get tired of your sexy robot girl?

    • I don’t think the QE plans can continue for many years, because central banks run out of securities to buy without causing serious problems for others trying to buy securities. Once the central banks stop their programs, or even slow them, interest rates are likely to rise. Rising debt defaults could also cause interest rates caused by banks to rise.

  2. Crates says:

    Gail, thank you very much for his magisterial classes of economy. They are a luxury !

    I wonder when there will come the moment Minski of the real-estate Chinese bubble. If we bear in mind the weight that has the construction in the economy of China (between 20 % and 30 % according to the information that I have) what sucedera later with the price of the raw materials is going to be epic.
    I wonder what stage is today.

    http://blog.ganderson.us/wp-content/gla/uploads/2011/02/bubble-graph.jpg

    http://4.bp.blogspot.com/-k5eJ85HuRME/V181ylTEGUI/AAAAAAAABMo/Ltkevqe3TmgsPnkztjIwAwgo1iLiGFG_gCK4B/s1600/Burbuja%2Binmobiliaria%2Bchina.png

    The truth is that in 2014 many thought it was about to explode. However he continued to worsen. We are talking about the biggest bubble in history in the words of Wang Shi, chairman of Vanke, the largest real estate China.
    Brexit I’m not afraid, nor Deutsche Bank … the scary thing is this .,.

    http://www.arqhys.com/wp-content/fotos/2012/05/Cae-edificio-en-china-.jpg

    • Chinese wages are not very high, and many people are being laid off from work. People are moving back to where they came from.

      It is hard to see how this housing bubble can continue for very long.

      • Crates says:

        I remember reading that Deutsche Bank estimates that China’s housing bubble will end in 2018.
        Logically will be a blow to many producers of raw materials. For example, copper producers.
        China accounts for nearly half of world copper consumption, estimated this year at about 22 million tons. Much of that amount is demanded by the construction.
        Observe the production and consumption of energy in the main copper producer in the world, which is Chile. We can intuit the increased costs and is not difficult to imagine what will happen in the sector, when Chinese construction stops. Nothing can compensate.

        https://scontent-cdg2-1.xx.fbcdn.net/v/t1.0-9/13932830_1066430846743334_2264677168489382094_n.jpg?oh=a2d9f9af83c64ffadceaaf9cf43ff013&oe=58A84802

        (I do not know if the link is operational)
        Blue line: Copper production in Chile.
        Red line: energy consumption of production.
        Energy consumption (which was equal to the growth of production) has increased exponentially in recent years, with stagnant production.
        Energy consumption is from 1995 (52,256 terajoules) to 2015 (with 163,063 terajoules).

        Many hopeless idiots deny that we have a problem with raw materials. Supply and demand and technology and bla bla bla will solve no doubt in the future.

        • It is amazing that China has been able to keep the housing bubble going this long. It seems like forecasting that it will continue to 2018 involves an act of faith. Where are all of the new occupants of the condos going to get enough money to pay for their new housing? Will China be adding enough high-paying jobs?

          I am sure that the copper situation in Chile is going on around the world. Some of it happens with metals; some of it happens with energy extraction; some of it involves housing all of the additional workers that are needed. EROEI doesn’t count the metals problem or the extra energy associated with the housing needs of all of the additional workers.

  3. Sungr says:

    Good article by Pepe Escobar- “Why the New Silk Roads Terrify Washington”. Escobar explores the economic and military integration of Eurasia. And the confused response from the West which is now viewing Eurasian integration as an existential threat. We may be looking at a Petro-Yuan in the near future.

    ” Neocon/neoliberalcon Washington is totally paralyzed in terms of formulating a response – or at least a counter-proposal – to Eurasia integration. A few solid IQs at least may understand that China’s “threat” to the US is all about economic might. Take Washington’s deep hostility towards the China-driven AIIB (Asia Infrastructure Investment Bank). Yet no amount of hardcore US lobbying prevented allies such as Germany, Britain, Australia and South Korea from joining in.”

    “with immense financial muscle backing it up, via a Silk Road Fund, the Asian Infrastructure Investment Bank (AIIB), the BRICS’s New Development Bank (NDB), and an all-out commercial offensive all across Eurasia, and the official entry of the yuan in the IMF’s Special Drawing Rights; that is, the christening of the yuan as a key currency worth holding by every single emerging market central bank.”

    http://www.informationclearinghouse.info/article45650.htm

  4. Yoshua says:

    Saudi Capital Spending to Drop 71% in 2016 Amid Cheaper Oil

    http://www.bloomberg.com/news/articles/2016-10-11/saudi-capital-spending-to-drop-71-in-2016-amid-low-oil-prices

    Capital expenditure is projected to fall to 75.8 billion riyals ($20.6 billion) this year compared with 263.7 billion in 2015 ($70 billion), according to the government’s bond prospectus obtained by Bloomberg. In 2014, capital spending amounted to 370 billion riyals ($98 billion).

  5. Ert says:

    On a related side-note: Jorgen Randers updated his 2052 model (Ugo reports: https://cassandralegacy.blogspot.de/2016/10/jorgen-randers-updating-2052.html)

    Ugo Bardi summarizes in his short blog post following from Randers:
    1. Randers’ model sees the growth of both the economy (in terms of GDP) and of the population up to 2052; although the forecasted population is less than 9 billion people, much lower than the UN predictions.
    2. Randers’ model doesn’t see scarcity for any resource, at least up to 2052
    3. Inequality and poverty will remain as significant problems.
    4. The model clearly says that we are NOT staying below the 2 degrees limits. Renewables will be growing fast, but so will do fossil fuels at least for another couple of decades.

    Wow, especially point 2! I mean, if there is enough energy we can get the other stuff out of the crust – no offense taken. But providing the world for another 26 years with increasing amounts (see point 4.) with fossils?

    I remember that Meadows was quite silent about Randers 2052 and distances him from Randers in their predicted outcomes. But somehow I have the feeling that something here is in la-la-land.

    • meliorismnow says:

      I went through Rander’s excel spreadsheet and it seems to be getting its resource data from here: https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf which in turn uses reported “proved reserves” so I guess it just comes down to whether you believe that a) they exist b) they really can be extracted economically c) what is economically

      My guess is that they are hopelessly optimistic but I haven’t seen the internal studies.

      • Ert says:

        “My guess is that they are hopelessly optimistic but I haven’t seen the internal studies.”

        That is what I remember what Meadows told indirectly when asked by a reporter. And something like “Randers wants to sell books”….

      • Ert says:

        Also thanks for the link to the BP studies.

        Yes, if it is indeed based upon those “static” data, not factoring in what Gail presents here all the time – the “economics” of the reserves within a networked system – then all of Randers stuff may be totally worthless. And I have the feeling, no haning looked at his data, that it is exactly that way…

      • Oil prices go down, so there is no guarantee that even those who are trying to provide good guidance regarding reserves are showing anything helpful.

        In the Middle East, there seems to be a contest as to who can show the most reserves. Unless the price is very high, it is extraordinarily unlikely that the amount that can be recovered will correspond to the amounts reported. I don’t think anyone believes their reserves–certainly not from the peak oil community.

        Also, the economy needs to grow. There is no way that it can simply shrink without collapsing. This means that a lot of the oil, coal and natural gas will be left in the ground. Once oil, coal, and natural gas consumption are headed down, it is likely the financial system will collapse. Randers can’t figure that out from what he is using–also he wouldn’t understand the issue.

        The 1972 Limits to Growth study was very different.

    • Oh dear! This is not good at all.

      Jorgen Randers did not have anything approaching a valid model underlying his original 2052 book. I wrote two posts directly or indirectly related to the book, and learned more (worse!) after I had written the posts. There are good reasons why there is no endorsement by Dennis Meadows in the 2052 book.
      https://ourfiniteworld.com/2013/09/25/why-i-dont-believe-randers-limits-to-growth-forecast-to-2052/
      https://ourfiniteworld.com/2014/01/13/why-eia-iea-and-randers-2052-energy-forecasts-are-wrong/

      I would be truly doubtful about anything Jorgen Randers has to say.

      I know Ugo Bardi well. Ugo would really like a happy ever after ending to our predicament. He used to be (and may still be) very excited about the possibility of kites that create electricity. In the article you linked, besides talking about Randers’ new work, he also talks about a paper he wrote with two other authors, showing how a transition to an economy using intermittent renewables might be feasible. Unfortunately, leaning on EROEI calculations to tell whether intermittent renewables can be made to work invites people to not think things through very well. Some basic issues I have with the new analysis:

      1. EROEI is not a refined enough concept to provide anything like a reasonable comparison between fossil fuels and intermittent electricity made using devices such as wind turbines and solar panels. The energy return has to be at virtually the same time as the energy investment, for one thing, to make the comparison similar to burning fossil fuels. Building a device first, and using it for 20 to 30 years creates a big timing gap, and a need to feed part of the energy output back to whoever finances the endeavor. This need for return on capital needs to be considered; the resulting dividends and interest need to be considered as part of the energy expenses of production, and the amount of energy produced needs to be reduced by these energy costs. This will have a material impact on the calculation.

      2a. EROEI does not deal with the intermittency issue at all.

      2b. The intermittency problem is a big deal. Besides a time of day intermittency problem, there is a much worse time-of-year problem. We do not have a way of storing intermittent electricity made in the summer, for use in the winter. I posted this natural gas consumption graph for the United States earlier in the comments. The big peaks in usages are in winter, when little sun is available. Note too, that natural gas production seems to already be declining for the US, because of the persistent low price. This is another problem, possibly forcing a quicker changeover to renewables than planned.

      US natural gas by month

      3. Transmission line problems with intermittent electricity are a very big deal, and will take an immense amount of energy to fix, if they can be fixed at all. One commenter (with a degree in physics, who now works in electricity) on my Intermittent Renewables Cannot Favorably Transform Grid Electricity post on another website had the following things to say about transmission:

      The fundamental requirement for an AC power grid is instantaneous balance between generation and load across many dimensions including power, frequency, and phase. Grid resilience and efficiency and safety are enhanced by anything that makes generation or load more controllable. Intermittency and uncontrollability in generation are anathema to all of the above. These twin evils impose new costs that others must bear, and which today are shifted to taxpayers and ratepayers via direct subsidy, dispatch priority mandates that distort markets, inflated end user excess power reimbursement rates that further distort the market, and a current nationwide rate structure dating from the 1930s that bundles most fixed costs into the volumetric consumption portion, and thus allows billionaires with huge tax liabilities and richer residential consumers with their own homes and disposable income to shift grid costs to poorer customers who lack the tax liabilities and rooftops and good credit needed to participate. As penetration of intermittent renewables rise, these costs and cost shifts increase exponentially, from trivial and easily accommodated at low penetration, to requiring scores of billions of dollars of new dispatchable generation and transmission and demand-side management — where we our now. Going much further will require terawatt-hours of storage, and this is far more expensive than the new natural gas plants and transmission lines we have been building to date. We simply can’t get to 100% intermittent because this is all a giant cost-shifting scheme, and there would be no one left to shift the cost to.

      As others have indicated, the examples of other nations with higher RE penetrations are informative. We see that Spain’s government was bankrupted by RE subsidies and reneged on them. We see that Germany has largely exempted its industry from the costs of its energiewende to try to keep them internationally competitive, and thus blatantly shifted costs to residential and commercial consumers, dramatically increasing energy poverty in one of the world’s richest nations. They have now hit a level of pain where they have imposed RE curtailment requirements for grid stability on virtually all PV solar, and are rolling back RE tariffs to try to control prices that are the second highest in Europe. Denmark holds the record for wind penetration and also for the highest retail electric prices in Europe. They also have drastically cut wind subsidies over recent years. The UK government dramatically reversed course on RE this year, as has Ontario just this week, suspending 1,000 MW of pending projects. Wind generation growth peaked globally in 2009 and has been declining year-on-year since then. PV solar appears to be ending its exponential growth trajectory, even as it provides far less than 1% of the annual global total, and only 7% of even Germany’s annual consumption.

      Eventually, governments exhaust their ability to hide the real costs of intermittent energy in ballooning national debt and increased taxes and cost shifting to the balance of the grid. When the reality hits consumers in their wallets, they find it more compelling than the false morality play stereotypes of green and good v. dirty and evil that do not bear up under rigorous lifecycle scrutiny in any case. Every form of energy has its environmental and emissions footprint. Some are more obvious as they happen primarily in the operational phase at the power plant. Others are less visible as they happen primarily in the manufacturing and decomissioning phases. A CSP solar plant that paved over 3 square miles of habitat just this week was slapped with a $1.5 million fine for polluting emissions of chemicals which are the precursors of PCBs.

      The EU is moving toward a freer market for power where intermittents compete on a level playing field with other generation by having to bid their firm production a day-ahead and are responsible to pay the LMP cost of replacement power if they don’t deliver. Under those terms, and without PTC and ITC and interconnection and ancillary service subsidies, no one could object to any form of energy being introduced to the grid. The market would be truly free to price it and to reject it if it is not cost-effective. It would put the cost burden for upgrading intermittent power to dispatchable power on the generators themselves where it belongs. Under these circumstances, there would be no further meaningful growth in wind or solar until there is an order of magnitude breakthrough in battery storage and price, neither of which are imminent. It is the cost of dispatch ability, not the cost of generation, which has always been the millstone around the neck of solar and wind. [My emphasis].

      Of course, if all you think about is EROEI (calculated at the “wellhead” and ignoring timing), you don’t figure any of this out. EROEI is a crutch that people have been using, without understanding how little it really tells them, especially about intermittent renewables. It is just plain misleading for intermittent renewables–EROEI makes the result look much better than it really is. Just ignore transmission, intermittency, and timing!

      The problem in pointing out EROEI problems is that it embarrasses a whole lot of researchers working in this field. It also is not of a great deal of interest to the general public.

      It is the return on the labor of non-elite human workers that is important. This return is already too low; it is the reason for the low commodity prices. Researchers with blinders on don’t realize that focusing on “EROEI at the wellhead” doesn’t really say much useful, when it comes to intermittent electricity.

      • MG says:

        The proof that our civilization functions on the stored energy is also the presence of big underground natural gas storages (that provide the secure supply of natural gas during the winter):

        http://www.kbbnet.de/wp-content/uploads/2011/11/111107-New-Gas-Pipelines-Storage-Europe.jpg

        Source: http://www.kbbnet.de/en/teaserwidgets/storable-energy/

        I would say that this is the reason why Germany has such a leading position in Europe: not only armies of robots, but also big energy storage capacities

        On the other hand, the electricity of Germany form intermittent sources causes shocks to the networks of its neighbours…

        • Very nice image, showing both big pipelines through Germany and all of the storage. Almost as good as having the country’s own natural gas supply! Still not very affordable, unless the price is below the cost of extraction, however.

        • xabier says:

          Excellent image: main clusters of gas storage: Germany, France and Britain. The lack in other regions is surprising!

      • Jt says:

        Bravo. All smoke and mirrors the planet will be a desert by the time they complete the change over to renewables and you still won’t be able to keep the lights on.

        • MG says:

          The problem of our era is that we have to build artificial storages for the dispersed energy of shale gas and oil and smaller oil fields. Besides fighting the intermittency of wind and sun energies and collapsing populations (wars and lack of workforce).

          And this building of storage capacities needs energy, besides the harder to get energy extraction.

          Our civilization in the past was built on cheap stored energy occuring in the nature. Our current era is about costly extraction and building, operation and maintenance of costly storages.

          • xabier says:

            Compare with this extraction and storage cycle: once you could cut down a tree from a timber stand which, if carefully managed, renewed itself in a comparatively short time, and haul it to the sawyers on a vehicle – made of wood – pulled by horses or oxen.

            The horses and oxen produced useful manure as well as labour, and meat and bones when past working.

            Storage for the wood was a shed, made of wood. When past its useful life, the timber structure could be burned.

            The body of the timber waggon would last for up to 60 years with minor maintenance, the wheels less, perhaps 30 years – not bad at all! Even then, the oak wheel spokes could be re-cycled into a lighter vehicle, and the rest burnt usefully.

  6. Yoshua says:

    The central banks have done everything in their power to save the global economy. In their effort to stimulate the economy with QE they created the mother of all asset bubbles. The irony is that the “banksters” will be hanging from lamp posts when the bubble bursts. People will not recognize that the banks have done everything in their power to save the world.

    • Sungr says:

      The big banks have a long long history of being on the wrong side of most everything they get involved with. When first presented with a major investment opportunity, they tend to balk and refuse to get involved because of shortsightedness and fear. When they do get involved, it’s either too little money or too much money. When the investment is nearing it’s sell point, they hang on way too long and end up in a financial disaster.

      A number of situations illustrate this behavior pattern- US farmland in the 70s, Rocky Mountain oil drilling in the 80s, emerging markets in the 90s, tech in the 90s-2000s, US real estate in the 2000s.

      • Yoshua says:

        I’m sure they make mistakes. I’m also sure that they act in self interest and are driven by greed. But this time they where given a very tough hand. Perhaps they could have acted differently… perhaps not.

      • Sungr says:

        Not a matter of a few mistakes. It’s a matter of systemically wrong-headed thinking in almost every area.

        Probably the biggest area of disconnect is the process of serial bubble blowing. They do not seem capable of understanding that bubble finance is a destructive and self-defeating strategy.

        • meliorismnow says:

          Some are dumb. Others realize that there’s far more money and power to be extracted in a bubble. As Citi’s Chuck Prince remarked during the subprime meltdown “As long as the music is playing, you’ve got to get up and dance.” And then his buddies at Citi took over the Obama administration to make sure they could steal someone else’s chair when the music did stop.

        • Yoshua says:

          The world has though out its history tried many different economic models, so far not one single one of them have survived, neither will the one we have today.

        • Sungr says:

          I would offer the 2000s fracking boom as an example. Lots of money on the way up. Massive bankruptcies on the way down w systemic risk for the entire system.

          Today we are dealing with 0% interest rates because of the near 2008 collapse. This impoverishes savers, retirees, insurance companies, municipal investors. Zero 0% interest rates negate the entire risk assignment function of markets- and basically leave the market power in the hands of central planners.

    • Fast Eddy says:

      ++++++++++++++++

  7. this of course fits in with the current political chaos.

    with Trumpanomics, the screaming masses are convinced that prosperity is just a matter of voting for it. (make America great again)
    when it doesn’t manifest itself, all hell is going to break loose.

    • Fast Eddy says:

      Imagine how they will react if Trump loses…and HRC fails to deliver ….

      • i wrote about that weeks ago

        Trump wins–economy tanks

        HRC wins economy tanks

        either way come 2020/4 you might be looking at chaos, economic meltdown and a theofascist in power

        Pence anybody?—–by all accounts hes a dominionist—then youll have real nastiness—make El trumpo look like a naughty choirboy

        When I wrote about a theofascist state—Pence hadn’t appeared on the scene—I get into a lotta trouble rubbing the wrong lamps

      • psile says:

        With a HRC election the “Weimar period” for the U.S. will have commenced. 4 more years of shafting for everybody at the hands of the global cabal is guaranteed, that’s if the world econ. doesn’t roll over, or the neocons don’t get their shooting war with Russia in the meantime…

        But rest assured, if we can make it that far into the future, the next far-right candidate for POTUS won’t be a ham fisted p*ssy groping jackass, but rather someone as slick as, as, well – Matthew Mcconaughey in the movie Interstellar, and he’ll reap the whirlwind of the rapidly approaching doom event horizon…

        • the “weimar Period” puts it very neatly

          I t really is worth reading up on Hi-ler’s speeches in the 30s—Trump word for word pretty much

          HRC cant deliver any more than trump can, because the resources do not exist to “make America great again” or even to sustain the economy at its current level.

          when Hit-ler was saying exactly the same thing he had to invade Poland to sustain his fantasy, and despite the wailing and contrition in 1945—the German people cheered him on when he was initially successful.
          The same millions are cheering Trump now.

          When the system collapses, as it must (as Hit-ler’s ponzi scheme), the chaos that will ensure will demand the takeover by a dictator, because faced with breakdown of society, governments have no option but to introduce martial law
          and in US political terms—that means a theofascism—the godbotherering wannabe dictators are waiting in the wings.
          The military will fall in behind whoever pays their wages..
          There’s no Poland to invade, and subjugate therefore the only “masses” to subjugate will be the American people—at least that section of them who are “unbelievers”—ie any kind of minority—and ultimately political opponent.
          We all know what happened to minorities in Germany in the 30s.
          The same thing will happen again—someone has to take the blame for what’s gone wrong wth the country and its economy.

          The parallels are exact.

          The constitution?

          Democracy is the child of affluence. It ends when democracy ends.

          • “The military will fall in behind whoever pays their wages.”

            I am afraid you are right. Academia will follow behind whoever provides grant money. No one really cares if what they are writing is reasonable–just that it is sufficiently plausible to get published, and there are enough peer reviewers who are looking at things from a similar pie-in-the-sky perspective. In fact, it makes it difficult to get correct things published–it is not what others would like to hear.

  8. Pingback: Why energy prices are ultimately headed lower; what the IMF missed - Deflation Market

  9. Lyn says:

    The global game over was scheduled for autumn 2008. However, thanks to the concerted effort by Bernanke et al most of us are still alive and kicking. We are now living in a “Perfect Illusion” as Lady Gaga would put it. The illusionists at work are pretty good at fooling close to 7.5 billion people. Props to Ben and Janet among others.

    It is funny to see people arguing over the possibility of “BAU lite” in a “postfossil age”. Breaking news: BAU lite aka downsizing has already begun for many people, especially those in Venezuela and Greece. And I dont think they like it. We are already downsizing despite the following measures taken: Obama doubled the US debt load, China’s epic debt binge (that saved the world economy), QE and NIRP and fracking which made some people actually believe that there is an abundance of widely accessible oil available to us all. Since I am working in the commodity sector I can tell you guys that the initial post-Lehman multi trillion stimulus only had a brief impact on the gobal economy. Most metals (as did oil) peaked in 2011 and ever since with the exception of a few short-lived ups have been declining to depression-like levels. The sector I am working in has been hit really hard in the past 2 years due to depressed prices and high price volatility of certain commodities. It is now not uncommon to see +/- 10% price movements within a trading day or two which makes running a small family business a PITA.

    Now with all amenities the oil age is offering us right now, multi billion QE programmes by BoJ and ECB and NIRP/ZIRP policies stimulating (lol!) the economy, the people running the show can barely keep up this illusion of BAU. The cracks in the system are getting more and more visible every day. However, even with all these unprecedented measures taken by the central banks all over the globe 99.9% of the people in finance and elsewhere are not aware of this dire situation. Some of them might be aware that “another” recession could be looming on the horizon but are not able to see that this might be the last recession a highly intertwined global economy will ever witness.

    The showrunners might have some more tricks up their sleeves to prolong the game for a little longer but they will obviously fail rather sooner than later. There are just too many variables in this complex world of ours which can trigger a Black Swan event. Just consider that most nuclear plants were developed in the late 1960s and early 1970s. It is just a matter of time until we see the next Fukushima-like nuclear disaster unfolding because of material failure. And yes, there are also nuclear waste and spent fuel rods to deal with at the end of the day….

    I think the world we live in today cannot even be labelled as BAU anymore. Most people in Greece, Brazil or Venezuela would probably agree. The day sheeple get out of their hamster wheel and lose confidence in the system, global just-in-time supply chains will be disrupted (as they nearly were in 2008) and there will be nothing else left than the fight for survival. As some other witty author wrote: You won`t like downsizing.

    • Van Kent says:

      Good post Lyn. Thank you.

      “I think the world we live in today cannot even be labelled as BAU anymore.”

      Americans under 34 are more likely to live with parents, than with a partner.. two thirds of Americans would have trouble to cover a $1000 emergency, since they don’t have savings.. the US has 2.3 million people locked up on any given day.. Police shooting people.. mass shootings..

      Yup, you’re right.

    • Thanks for your “on the ground” view of what is happening. My sympathy to someone trying to run a small family business in the commodity sector, with price swings of +/- 10% in a day!

      I agree that problems are already starting to happen, both in countries that consume a lot of oil as a share of their total energy supply (such as Greece and many island nations) and oil exporters without big reserve funds (such as Venezuela). Brazil isn’t an exporter, but it depends heavily on taxes on oil production. It also is a heavy user of oil in its energy mix. Its second largest source of energy is hydroelectric, and this has not been doing well, either, thanks to drought. You can see graphs of BP data on this link. http://mazamascience.com/OilExport/ http://mazamascience.com/OilExport/

  10. el mar says:

    The E.T.P. Model is very interesting but has two weaknesses.

    1. It only investigates oil and not the interconnectedness with other forms of energy (gas, coal …), as Gail has pointed out.

    Additionally:
    2. It expains, the need of dept support for the producers because of the low price-elasticity of supply but forgets the dept support for the consumers because of the low price-elasticity of demand.

    For example. If a war betweenn Saudia-Arabia and Iran would take place, demand will be higher than supply. The consumer will pay much higher prices als long as they can shift expenses from other things (holidays, electronics, hobbies and so on) and are able to rise dept.
    Personally I would (and would have to) pay much higher prices to drive my car.

    As long as dept-levels can rise, price-elasticity on both sides can be supported.
    The lack of confidence in fiat money will probably be the game-killer.
    FE with his goldbars is an early adopter. Hell will break loose, as soon as the masses follow his example!

    Saludos

    el mar

    • I also think the model has a lot of errors in it. I don’t know of anyone from the EROEI community who would consider the results “reasonable.” It most likely makes some of the same kind of errors that Yoshua made in his comment yesterday. http://ourfiniteworld.com/2016/10/11/why-energy-prices-are-ultimately-headed-lower-what-the-imf-missed/comment-page-1/#comment-102678 (I am not sure this link works.) Much of the energy used is electricity (definitely not from oil). The EIA energy use data is already “grossed up” to reflect the quantity of fossil fuels that would be required to make this electricity (typically by dividing by .38). ICE losses don’t occur everywhere. Besides, they have been occurring all along. There are a lot of questions about data for marginal production or average production. The model data is mostly US data. We all know that newest US oil is not economic, and hasn’t been for quite a while.

      • Yoshua says:

        I made an error ? I blame it on the Hill’s ! 🙂

        • This is why a person does not put a lot of faith in a study by an unknown person who comes up with radically different results from others who have been studying the subject. There is a good chance he doesn’t know what he is doing–beyond spelling thermodynamics correctly.

    • I think you mean “debt”, not “dept.”

      I agree that rising debt levels are what keep the economy going. It should be rising wages that keep the economy going, but wages of most workers have been falling behind. Rising debt levels can act as a substitute.

      I think the lack of confidence in fiat money is likely to affect relativities among currencies. Exactly how this will play out is unclear. We have the EU starting to unravel. This could be pushed further, by countries wanting to leave the EU, so that the relativity of their currency can be lower. Oil exporters, such as Saudi Arabia, may need to unpeg their currencies from the dollar. Ultimately, the US dollar cannot be a whole lot higher than other currencies, or no one else can afford exports from the US.

  11. richard says:

    Thanks Gail, maybe your best thus far! Judging by the comments on ZeroHedge (I lol’d) things have gotten stirred up. I’ll add this – think about the pension funds flows :
    http://www.zerohedge.com/news/2016-10-10/how-perverse-economic-effects-created-etfs-are-setting-next-crash
    “Between the second quarters of 2013 and 2016, Exxon had a revenue decline of 46 per cent, an earnings per share decline of 74 per cent and a debt increase of 129 per cent, which led to a share price increase of 4 per cent. Anything could happen to the energy industry or Exxon’s fortunes, but a liquid index component can only go up.”

    • Another quote from the article:

      Mr Bregman says: “The normal valuation for a lapsed growth company might be 12 to 15 times earnings. But all of the companies at the top of the S&P 500 have a valuation of 22 to 25 times earnings. If the indexation money comes out of them, they would be driven 25 to 50 per cent lower, relative to the market.”

      Furthermore, even stocks not included in index funds are clearly influenced by the low interest rates. If the risk free interest rate went up to, say, 5%, prices for even a normal lapsed growth lower would be driven far below 12 to 15 times earnings.

  12. Observer says:

    I don’t think we have reached “peak oil”. Many have called that in the past and have been incorrect, e.g., Walter Fuchs, 1946 “When the Oil Wells Run Dry”.

    New technology in old fields keeps finding more reserves.

    • The issue is not finding more reserves. We have an incredibly large amount of oil that could be extracted, if only the price would move high enough. The problem is that the oil becomes non-economic at those high prices–demand collapses, and prices fall too low.

      Our problem is too low commodity prices, brought about by too low buying power of workers. This is brought about by the economy as a whole having too little cheap energy to hire workers and pay them good wages, because of the work done by the cheap energy.

      • Fast Eddy says:

        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.

        Oil Party Faux Pas

        “So How’s The Old Reserve Replacement Going?”

        It can also just be about those fickle little things called prices.

        One of the things that makes proved reserves proved is a reasonable certainty they can be produced economically. A barrel of oil that costs more to get out of the ground than anyone is likely to pay for it isn’t, from any rational viewpoint, going to be produced. So, depending on the vagaries of the commodity markets, it can disappear from the books, even if it physically still lurks there beneath the ground.

        A good example of how this works is what happened last year with Exxon Mobil, which suffered a serious reversal in its reserve replacement ratio:

        Exxon’s reserve replacement ratio crashed below 100 percent in 2015:

        https://www.bloomberg.com/gadfly/articles/2016-09-30/big-oil-reserve-replacement-price-gains-won-t-help-much

        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.

        More http://www.bloomberg.com/news/articles/2016-09-20/oil-majors-must-count-on-m-a-to-replenish-reserves-woodmac-says

  13. Fast Eddy says:

    There Ain’t No Such Thing as a Free Lunch (TANSTAAFL) and electricity isn’t free energy and batteries aren’t cheap.

    Plugging in seems free because (for now) there is no meter attached to the port and whatever it costs to feed juice to your EV is either folded in to your general household utility bill or (if it’s a public charger) it’s “free”… for now.

    Until they start to charge you for a charge.

    It’ll be “free” just long enough to get you gulled into believing in such an idiocy as “free” energy.

    And batteries.

    http://ericpetersautos.com/wp-content/uploads/2016/10/battery-cost–300×181.png

    We keep hearing they’ll get cheaper. Maybe so. To some extent, they have. But right now, they still cost a fortune and until they cost a fraction of their current cost, electric cars will never be an economical alternative to a car powered by internal combustion.

    Which is why it is necessary to massively subsidize electric cars via tax (and carbon) credits and so on. Absent these, not even the stupid rich would pony up. And for the average person, a $30,000-plus car (whether electric or IC-powered) makes as much economic sense as a snow shovel in Phoenix.

    Buy an EV because you think it’s cool, because it’s quick or for any of several other reasons. But as an economic decision, it’s wasteful and frivolous.

    And this “emissions free” business?

    These Green People are immensely dishonest or immensely uninformed. Unless it becomes possible to harness lightning bolts or extract energy from the vacuum somehow (and in a “clean” manner) man-made electricity will continue to entail the production of emissions. Coal and gas produce plenty of C02. Does it make it any difference, global warming-wise, whether the C02 is produced at the smokestack vs. a tailpipe?

    Yes, there is nuclear power generation. It also produces “greenhouse” gasses (water vapor at the cooling towers) and (much worse, Gaia-wise) radioactive waste that lingers for thousands of years and which is immensely more harmful both to the earf and to the human beings who inhabit it than asserted harms caused by an inert gas (C02).

    It’s fatuity wrapped in effrontery.

    http://www.zerohedge.com/news/2016-10-11/extinction-level-event

    • meliorismnow says:

      Using the average retail cost of electricity vs the average cost of (regular) gasoline, gasoline is 2-4x more expensive (depending on EV and driving behavior) given average EPA consumption of comparable new vehicles. And since the most expensive components can last longer (and the battery refurbished or sold) than in a gas car, there is certainly a financial argument to make (despite the higher up front cost for comparable vehicles) if you drive the car into the dirt and can get the full $7500 tax credit and everything works as expected. But a much better option is to buy (non tesla) used EVs or PHEVs. They can currently be had for cheaper than the comparable gas vehicle and as stated above the operating costs are significantly reduced.

      The Bolt should be available nationwide in a year for $37k before tax credit. The 215mi range meets 90% of new car buyers (performance and convenience) expectations and is only $5k more than the average ($2500 less after tax credit). Unfortunately it is not as physically attractive (to most buyers) as most 30k cars and many are wary of new technology (especially that they don’t understand), expensive purchases, and GM. Even so, it should sell well and further drive down prices of EVs (particularly >100mi ones) new and used making them even more cost effective.

      When Tesla releases the Model 3 (supposedly the end of next year) we’ll have an all around attractive option that starts at $35k (before credit). Unless something goes wrong, Tesla will be capacity constrained at least until 2020. All of the tax credits will be gone by then and EVs and PHEVs will be the best financial option anyway (comparing new, comparable vehicles).

      By that time, uber and lyft will be offering autonomous vehicles and the operating costs and green PR will steer them both toward EVs. Tesla plans its own service, where customers who couldn’t normally afford their car allow it to give rides when they’re not using it (or charging it) to pay towards the lease. Competition between these services will likely make owning a car a bad financial decision for most people, particularly the poor who can and will share their rides with others. This will greatly reduce the cars on the road, reducing traffic, accidents, particulate emissions, etc. The fleets will negotiate preferential electricity rates, adapting instantaneous microgrid demand with supply. In areas where power is mostly traditional baseload (so pricing from nadir to peak is not so significant) and relatively expensive, they will partner with others to add RE to supply themselves (likely having to increase the amount of vehicles over the normal time-based pricing, but who cares if the car is retired after 10 years and 1M miles or 12 years and 1M miles).

      • DJ says:

        How long will the tax credit last when penetration exceeds 5%?

        Autonomous EV cabs? When and where will they recharge?

        • Ert says:

          @DJ

          When the penetration rate increases then the people have to eat the full costs – or the game goes the other way around: ICE’s get a penalty. Private possession of a car will get more expensive… either way.

          The problem with autonomous vehicle is that It is calculated, that the traffic with them can even increase big time, as they drive around more – if car pooling is not or will not become mandatory by law.

          Inductive recharging or even operating a plug by a robot mechanis is no problem. The infrastructure had to be installed anyway… the question is: Who pays for this new charging infrastructure? Who installs the new thick cables to provide 10 times 120KW charging (1.2MW!) at a charging-station? or even with inductive charging at a car-park with 100 charging pads?

          • DJ says:

            Ert,
            I wanted to hear Melioris answers…

            I understand ICE are tax cows, if we don’t have those government needs taxes from somewhere else.

            Of course traveled miles will increase with AV, unless cost per mile is ridiculous. I suppose there will be some extra driving to the charge station also.

          • Fast Eddy says:

            I have to chuckle when I hear that EV’s are green… there is of course the massive toxic battery… the fact that they don’t grow on trees… and the reality that dragging a couple of tonnes around the street no matter how you power it… is the furthest thing from green …

            Want to be green? Take the bus … want to truly be green — walk.

            F*&^ Elon Musk and his piece of scrap

            Based on survey responses, Tesla has made a habit of replacing the car’s electric motors. The brake rotors tend to warp. And the door handles often fail to “present” themselves as drivers approach their cars.

            Those automatically retractable door handles are a signature element of Tesla vehicles, but when they don’t work they effectively lock drivers out. (We had this problem with our Model S P85D.)
            Other problem areas include:

            Inoperable wipers
            Leaking battery cooling pumps
            Out-of-alignment trunk and hatchback latches
            Persistent wheel-alignment issues

            http://www.consumerreports.org/cars/tesla-reliability-doesnt-match-its-high-performance/

            Oh – and to show how powerful Koombaya and hopium are… get this:

            Despite the problems, our data show that Tesla owner satisfaction is still very high: Ninety-seven percent of owners said they would definitely buy their car again.

            Ha hahahahahaha …. wonder what they will say when they get the bill for tens of thousands of dollars for the new battery in a few years…. they will probably suck it up because it’s all in the name of a good cause — saving the world! Idiots every last one

          • Who builds the roads? All of these ideas are crazy, because we cannot keep up roads and bridges. Howard Kunstler recognized this problem, back in “The Long Emergency.”

            • meliorismnow says:

              What % of resources are currently consumed by road maintenance? How much can this be reduced by reducing axle weight maximums or increasing fees on heavy trucking or repaving less often or filling holes sooner (sense and fill automation) or making roads last longer? How much can this be reduced by abandoning pavement on roads deemed economically unviable? Can economically unviable tarsands be partially processed for direct use in asphalt? If the US were to have a slow economic decline, how many decades of decline would be necessary to stop maintaining some subset of bridges? 20+ decades?

              Are bridges even possible without fossil fuels? How about one .7mi long across a river?
              https://en.wikipedia.org/wiki/Trajan's_Bridge

              Clearly the US is letting our infrastructure go (that was built with abundance) and that will continue as resources deplete. If society collapses it will nearly be absolute. But that decay can’t be a primary driver of the collapse.

            • The financial system is likely to be the immediate driver of the collapse. This financial system collapse could be caused in any of several different ways (EU breakup, China debt defaults, debt defaults due to low commodity prices and high $, rapidly changing currency relativities and problems with derivatives, etc.) Behind the scenes, energy consumption is dropping because of inadequate wages, really causing the problem.

              The big problem in repairing roads is likely to be the difficulty in paying workers, with banks closed. We need the “system” to work. It will also be hard to keep electric transmission lines repaired, and many other things we need. The issue isn’t what percentage of current resources are consumed by road repairs. It is keeping the whole system operating together. When this fails to happen, the whole economy is likely to collapse at once.

            • meliorismnow says:

              I’m in agreement that none of my ideas will pan out if we have catastrophic collapse before they can bear fruit (but losing roads and bridges before then won’t be a problem). I too am worried about systemic collapse and therefore want to transition society towards sustainability. Whatever we can successfully transition has at least a chance of surviving collapse and it may even still be possible to avoid it altogether. But our track record thus far has been pitiful. Our society/technology is leveraged as much as our economy is…

            • Fast Eddy says:

              Stay hard on the rudder… the ship is coming around….

            • DJ says:

              Should I read further than “Though it was only functional for a few decades,”?

            • DJ says:

              Only .4mi, but 600 years later …
              https://en.m.wikipedia.org/wiki/Charles_Bridge

            • Fast Eddy says:

              They don’t make them like they used to…..

        • meliorismnow says:

          The tax credit quickly declines 3-6mos after manufacturers sell 200k EVs in the US. So GM and Tesla are likely to hit their allocation first mid-2018 and the credits will be gone for them mid-2019. Assuming Nissan decides to stay in the game either by cutting prices or improving range, they’ll probably join a year later. Ford, Toyota, and VW being late to the game would then be able to undercut the competition on the midrange segment whereas remaining players (mitsubishi) could undercut on the lowend but I’m guessing by that point congress will feel EVs can stand on their own feet/tires (and the makers who actually innovated will complain about their disadvantage). That said, Ert may be right about ICE’s getting penalized.

          As for AV EV charging, at first they will charge at a few local depots around each city. Inductive charging is offered at good efficiency by several players and tesla has a sensing plug that puts itself in. Personally I think the simplest efficient solution is the EV driving itself into a loose socket/plug (like an inverted, enclosed pantograph) centered on its space but exposed rails or catenaries could be used if human access is restricted. If it’s overnight regular 240V AC is sufficient but as Ert mentioned there are three HVDC standards that could be utilized if necessary (most likely the business case will not be there for cities but will be near wind & solar farms).

          They will prefer to charge when and where electricity is cheapest but still be prepared for large upticks in demand (whether predicted or not). Most likely for weeknights the standard will be park in the suburbs, take a commuter into the city (say 15 mi), then do ~20 5mi local trips, then bring that commuter back and plug in. If most trips are scheduled/known in advance (eg commuting) it would be easy to optimize away most deadheads and pack in riders who want to save money (including “driver’s” seat). Those whose needs don’t fit well are penalized with higher rates (and likely given to human drivers).

          • DJ says:

            So what cost per mile do you figure?

            AV can’t recharge when electricity is cheap, they must recharge when they must, otherwise they can’t accept clients

          • Fast Eddy says:

            Tesla is a joke that would not exist without billions of government handouts

            http://davidstockmanscontracorner.com/tesla-bonfire-of-the-money-printers-vanities/

            And to top it off — it is a piece of junk when compared to other vehicles in that price range

            http://www.consumerreports.org/cars/tesla-reliability-doesnt-match-its-high-performance/

            This is one of the consequences of Living in DelusiSTAN and suckering up the hype…. you get stuck with a lemon.

            But at least you get some solace in the fact that your neighbours all chipped in to pay for your piece of junk — subsidies are not free — it is there tax dollars that paid for them….

          • DJ says:

            And it is not like Tesla makes a lot of profit on each car, sooner or later they want profit. I suppose.

            • meliorismnow says:

              Their profit on current models is quite juicy but they are investing it and more into a gigafactory, mining agreements, expansion of their supercharger network and stores, and ramping up for model 3 production (and solar city acquisition). A base model 3 will likely be break even to start but they will prioritize better equipped reservations to achieve profit at first and lower costs with volume and experience to be profitable even on base. Eliminating the dealer/middle man helps. I don’t see them going after the economy sector though…let GM and Nissan fight over that.

            • Fast Eddy says:

              Can you stop with this bullshit.

              Tesla gets billions in government subsidies and STILL is able to manage this:

              Tesla burns cash, loses more than $4,000 on every car sold | Reuters

              The Silicon Valley automaker is losing more than $4,000 on every Model S electric sedan it sells, using its reckoning of operating losses, and it burned $359 million in cash last quarter in a bull market for luxury vehicles. The company on Wednesday cut its production targets for this year and next. Chief Executive Elon Musk said he’s considering options to raise more capital, and didn’t rule out selling more stock.

              http://www.reuters.com/article/us-teslamotors-cash-insight-idUSKCN0QE0DC20150810

              Of course as we know… in D-STAN …. you can make up for the losses by selling more cars….

              Success!

              http://stream1.gifsoup.com/view7/4461675/gong-show-o.gif

            • meliorismnow says:

              FE, it might make a good headline to simply divide operating losses by number of cars sold and report it as a losing that amount on each car but it’s simply untrue. If you subtract expenditures on factory buildouts/upgrades, R&D, and retail/charger buildout they are immensely profitable. The question is can they convert from a boutique luxury car manufacturer to a battery and mass car manufactuer from scratch. If LG chem seriously outdoes them on the battery front (in terms of price or performance) they die. If LG chem slightly outperforms them in batteries they’ll have to perform well on the car front (to quickly adapt to the large battery output AND make up for flailing battery business). If they perform poorly on the model 3 they die regardless of their battery performance. And with them rushing design (of the car and manufacturing) and contractors and having no experience in mass manufacture of cars (w/ steel bodies) it’d be super easy for them to fail in a number of ways. Most recall issues aren’t known for several years after release and with this being Tesla’s first and only large volume product if a serious recall happens after a million+ M3’s are out in the wild they die. If their warranty is way too optimistic (they’re currently offering 8year-unlimited miles on drivetrain and battery) for the M3 they die.

              They’re mitigating risk slightly by staggering release (to employees and devotees who are less likely to complain about problems) and by instrumenting and communicating the hell out of it but I personally don’t feel comfortable investing in Tesla, particularly when it’s already priced to succeed.

              http://www.fool.com/investing/general/2016/03/27/how-tesla-motors-could-be-profitable-if-it-wanted.aspx

              All that said, given what they’ve already achieved I think it’s been a great investment by the gov’t who usually doesn’t have this kind of success (outside of small DARPA/ARPA contracts).

            • Fast Eddy says:

              You are either stupid – or a troll.

              Choose.

        • The tax credits are only possible because of profits indirectly coming from fossil fuels.

          • meliorismnow says:

            The present world is only possible because of the (energy) profits directly coming from fossil fuels. No need to single out minuscule expenditures in the US budget on renewables much less EVs. Both of these have the potential to transition away from our current dead end (especially together) even if you consider it to be small. What potential do the wars have? Or designing new bombers and ICBMs (as the US is currently)? Or promoting exponential growth in a post-peak world?

            • Fast Eddy says:

              Thank you for posting more nonsense.

              ExxonMobil in 2011 made $27.3 billion in cash payments for income taxes. Chevron paid $17 billion and ConocoPhillips $10.6 billion. And not only were these the highest amounts in absolute terms, when compared with the rest of the 25 most profitable U.S. companies (see our slideshow for the full rundown of who paid what), the trio also had the highest effective tax rates. Exxon’s tax rate was 42.9%, Chevron’s was 48.3% and Conoco’s was 41.5%. That’s even higher than the 35% U.S. federal statutory rate, which is already the highest tax rate among developed nations.

              http://www.forbes.com/sites/christopherhelman/2012/04/16/which-megacorps-pay-megataxes/#b95006e7a7ee

            • Don’t be unhappy about commenters making false claims. If we didn’t have commenters making false claims, we wouldn’t have a chance to post rebuttals.

            • A Real Black Person says:

              “Renewables much less EVs. Both of these have the potential to transition away from our current dead end ” No, they don’t have the potential to allow industrial civilization to continue without fossil fuels. The defense spending is for helping maintain the American way of life, which includes putting a lot of pressure on Middle Eastern nation-states to export as much oil as possible. Without exponential growth, (capitalism) what happened to the USSR would happen to the USA.

              A strong case could be made that civilization itself requires constant growth.

            • Fast Eddy says:

              ‘Facts R Not Us’ TM meliorismnow

            • meliorismnow says:

              RE: What in my post are you disagreeing with? But let’s go down your awful, stupid rabbithole left by the goalposts you moved… “ExxonMobil in 2011 made $27.3 billion in cash payments for income taxes. …Exxon’s tax rate was 42.9%…” OMG, the US sure was taxing the crap out of them!

              But then later “…ExxonMobil pays tax of just 13% or so on its U.S. profits. But if Exxon pays a smaller portion of its taxes in the U.S. it’s because it faces huge tax bills overseas in countries like Angola.” Hmm, 13%? Do you know how this works? Like a normal international company they get credited for taxes paid overseas to avoid double taxation. But wait, they didn’t get taxed in Angola for profits on oil sold in Angola like it would work for most other multi nationals. Angola simply charged them for extraction which is simply the cost of doing business in Angola. These, like their drilling costs (which is “nebulous” meaning whatever they want to write off) or exploration should just be deductions. And the propaganda then compares net profitability to atypically high net margin companies like Apple in a completely incomparable sector. Then it wants to consider consumer taxes as taxes on oil companies when in fact those revenues are less than maintenance expenses for the roads oil companies rely on for their livelyhoods. You’re entitled to your religious opinions and I’ve yet to be offended by your endless namecalling but don’t expect to get away with linking to propaganda to rebuke me.

            • Fast Eddy says:

              I am stuck for a word…

              What do you call someone who bases their understanding of complex issues (and often simple issues) based on what they read in the MSM…. who then loads up a forum swarming with brilliant insights — with endless nonsense…. is then proved to be wrong over and over and over again …

              And instead of not thinking they know a lot — recognize that they really haven’t the slightest f&^%ing clue …. and try to learn from others who have actually thought these complex issues through.

              It will come to me… anyone… anyone….

            • meliorismnow says:

              A Real Black Person: “The defense spending is for helping maintain the American way of life, which includes putting a lot of pressure on Middle Eastern nation-states to export as much oil as possible.” It requires tons of natural resources to supply the warfighter and tons of resources to rebuild what they destroy. It also engenders hatred, warfare, and terrorism which again waste resources and hurt our interests as a nation (and more importantly as a species). ME nation-states are generally very willing to output lots of oil because it keeps their people happy and employed and the rulers in power. We’ve certainly been able to strong-arm sweetheart deals for our country like Iran 1953-79 (Operation Ajax) but it only created a bloated society dependent on super cheap oil as could be seen in the crisis to follow.

              “Without exponential growth, (capitalism) what happened to the USSR would happen to the USA.” And yet, the Soviet Union posted (exponential) growth every decade of its existence (unlike the USA during the great depression, which we survived btw). It even nearly managed to hold its own with the US (who in turn was greatly enriched by WW2) for 30+ years following its tremendous losses. It was this obsession for hegemony and military superiority that really led to its downfall. The final straw seemed to be a resource war in Afghanistan (graveyard of civilizations), where the “enemy” was trained, supplied, and supported by the US. These groups thrived on a version of Islam that we promoted in the middle east called Wahhabism which was (and is) fundamental to breeding terrorism. We’re playing the same proxy war with Russia today only neither of us have the resources to spare on this meaningless enterprise.

      • Fast Eddy says:

        I am forever thankful to CTG for this …. it saves me so much time!

        https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect

    • A Real Black Person says:

      The tax credits for EVs and other “Green” products are like Left-wing versions of tax breaks for the rich, in the U.S.

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  15. Fast Eddy says:

    ‘Clean Coal’ Is Far From Real

    The one U.S. plant that’s being designed to use carbon capture, now under construction in Kemper County, Mississippi, is two years behind schedule and $4 billion over budget. A similar, heavily subsidized project in Saskatchewan has demonstrated that outfitting the world’s power stations with the technology could cost upward of $17 trillion.

    https://www.bloomberg.com/view/articles/2016-10-10/-clean-coal-is-far-from-real

    • Thanks for the link. Clean coal is one of the stupidest ideas of all time. It would burn through our coal supply (which is declining already) at a rapid rate, because it takes so much energy to perform all of these processes. If the CO2 escapes from underground, it will smother the people in the area where it leaks out, since it hovers close to the ground. Who would offer liability insurance for such a project? The list of questions is enormous. We have known for a long time that the plants would be hugely expensive.

      • A Real Black Person says:

        Why does this idea refuse to die?

        • There has been a lot of government grant money to study this. Academic researchers will write a somewhat positive report on absolutely anything, if there is money in it for them to do so. Also, with coal being such a large share of electricity consumption in the past, there is the very optimistic view that something must be possible to make it “clean.”

  16. adonis says:

    ‘in fact the iea assumes a price of $300 per barrel’ i thought i would check the correctness of that statement ant according to the following sentences from the world energy outlook 2011 under the heading new policies scenario = regarding international energy prices oil prices are assumed to rise continuously until 2035.the average price assumed for iea crude oil imports is $109/barrel (in real 2010 dollars) in 2020 and $120 in 2035

    • Look at the chart I am showing. It goes up to $300 per barrel. The IEA doesn’t talk about the Business as Usual Scenario — that is what they hold over our heads as what would happen, if their “new policies” scenario or one of their other preferred scenarios doesn’t take place. It is BAU that is assumed to use very high priced oil. (Perhaps they call it something else.)

      • Jeff says:

        No, the figure you show is a cost curve for supply. This is used as input data to generate scenarios/projection/forecast. The cost curve is NOT a scenario and IEA never state that the (equlibrium) price will reach $300.
        There is a figure in WEO of the price in different scenarios. These figures may be wrong as well but they certainly do not reach $300 in the period covered in their analysis.

        • Harry Gibbs says:

          I guess it’s almost a moot point, given that even the current $50 is not at all cheap in inflation adjusted terms and anything over $100 is a nightmare for the wider economy.

        • I agree that the cost curve is not a scenarios and the IEA never states that the equilibrium prices will reach $300 per barrel in the period covered by the analysis.

          If a person takes the prices from the Current Policies Scenario (the BAU scenario), and forecasts them forward to 2100 based on the last pattern shown (future $ per year future changes in prices being similar to those implied by the price changes shown using the last two dates in the IEA report), you get to $285 per barrel. This is close enough to $300 per barrel for my purposes.

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  18. CTG says:

    This was my last post before WordPress froze the blog. Basically, they are some thoughts of mine..

    One cannot compare “now/present” with situation 30, 50 or 100 years ago. Our needs now are significantly higher than what we need 20 or 30 years ago. This “need” can be a personal need or a regulatory need. These needs will translate to more “fossil fuel” use.

    Examples of a personal need – Before tablets (iPads) comes out, there is no need for that kind of gadget but now, many of them cannot make do without it. Same goes for cell phone, computers, leisure/business flights, etc.

    Some of the needs are indispensable – medication, kidney dialysis, glasses, etc. Actually, if you are not reading in poor light, playing computers, etc, you may not even have vision problem to begin with !

    Some of the needs are regulatory – airbags for cars, food toxicity check, environment quality check and a huge amount of other regulations that many people find it useless or waste of time (actually it should be known as waste of energy).

    For those who are more than 40 years old, can anyone remember that we don’t wear any helmets when we cycle around? Our parents more or less could not be bother if we fell down? We sat in cars that was rikety and has no safety features? We swing on the bus railings or do other things that are considered “dangerous” now. How come it was not dangerous then? Does it mean that our fatality rate now is much lower than last time?

    If you think about it, NO. Cars go much faster now and waste more fuel. We felt confident that with airbags, ABS, EBD, TCS or whatever 3-letter acronym is there to save us from any accident. In fact, the best way to reduce accident to close to “zero” is not have an airbag but a stake/sharp knife on the steering wheel. The knife will just pierce through you if you brake suddenly or have a crash. All of a sudden, everyone will be very careful, driving 20 mph, everyone turns on the turn indicator and everyone is very polite on the road. Cars are checked very often and I am not surprised if no one dies on the road anymore.

    Now, not only are cars goes much faster, we have more accidents. Jevon’s Paradox suggests that due to the marked efficiency of fuel injection, lower engine weight (aluminum engine) and other improvements, we should improve on the air conditioning, entertainment, GPS, fine leather seats, etc. We can make the car bigger and better.

    Historically, every generation of cars goes through an improvement cycle that is not “fossil fuel friendly”. Longer, heavier, more features. With Jevon’s paradox, if we just maintain that same size from 1980s till today, we would not have used so much fossil fuel.

    http://diminishedvalueofgeorgia.com/wp-content/uploads/2012/10/Honda-Accord-History.jpg

    Personal needs

    Do you think anyone would give us their needs? Simple put, do you think anyone would want to trade down their smartphones to feature phones like the old Nokias? Do you know how many people are employed in this “smartphone” field? The semiconductor designers, the chip factories, the logistic companies (planes to fly the engineers, phones, trucks to ship the capacitors, screens), the factories that build these phones, the plastic companies that produces the casing, the glass factory that does the glass, the machines that makes the casing, glass, the chemical used in making this phone, the software engineers that make the games like Candy Crush, the HR/facilities/cleaners personnel that maintains the headquarters of King Software (maker of Candy Crush), the phone shops that sells the phones, the repairman that repairs the phone, the people who mined lithium for the batteries, etc There are literally hundreds of thousand of livelihood that depends on smartphones. Mind you, smart phone took hold in 2006 and began its epic rise in 2010 onward. In a few years, it has given employment to so many people.

    So, if anyone thinks of ‘living simpler” without smartphones would literally means that thousands of people from every corner of the world out of work. So, who is going to give them jobs? Who will feed them, clothe them.

    Do we have a backup plan just in case smartphone fails ? Can we do everything a smartphone does with an old Nokia clamp shell phone or a fixed line phone? Can we do it without any efficiency loss? We are so primed for efficiency that we have no room for errors when we go down the efficiency curve (example: if our farming yield goes down from xx% to yy%, can we still sustain the same lifestyle?). A 5-man software company replies on 1Gb internet to work as they need that high speed to do the programming. If it drops to 100Mbs, does it mean that they will continue to function as a company? Probably not. Why? They are not used to that kind of speed and in the end, they will just not get anything done.

    Medical needs
    Do I need to say that without advanced kidney dialysis, MRIs, etc, do we still have today? Are the doctors trained to do diagnosis without the modern equipment. I can tell you now – NO. They cannot because they are being taught in school how to read the images from MRIs and not from talking to patients, examining them, etc. No MRIs, no diagnosis. All the old school method of checking, diagnosing. They are all but gone. It is the old doctors, like those in the 70s probably know what that is all about but not the young ones.

    http://photos.newswire.ca/images/20140723_C8482_PHOTO_EN_42224.jpg

    The MRI – I have no idea how to build one without BAU. Furthermore, they are filled with software and patented hardware that no one can replicate. I can give you an MRI, you can tear all down but you cannot know what software it is running inside its EEPROM, chips, PLDs, etc. Those are patented and no one can copy them. There are no substitutes.

    Regulatory Needs
    Government will grow in size, regardless of race, country and time. Even the Aztecs, Babylonians has way too many priests and artisans that needs to be supported by the productive society.

    Safety requirements, be it real or not is energy intensive. Same goes for all others. Even if government shrinks, will be population accepts it? Example – less police to enforce the law, less checks on medicine? The population will just ask for more. So, in the end, more fossil fuel use.

    I would like people to re-butt what I have written. Tell me that I am wrong but give me facts and evidence. I don’t want “just talk”.

    • everything you say is quite correct

      unfortunately it is also discomforting, because being correct it effectively negates our future, because you can’t pull out just one of the cards above without the whole house collapsing.

      we ”have” mri scanners, phenominally expensive though they are—it isn’t possible to arbitraily close down that aspect of medical care—or baby respirators, or dialysis on the basis of cost. .

      in other words we cannot ”unlearn” what we know.

      and that of course is going to be a curse of our future, and where comparison to our past really lies.
      we will ”know” that certain things can be done, but lack the means to do it.

      unlike our forefathers, who died of –say—smallpox, not knowing there was a cure waiting to be found—it wasn’t that they did have the means, they didnt know such means existed.
      we on the other hand will besiege hospital buildings demanding cures, not knowing that cures were always the product of energy input.
      Doctors themselves will have no more to offer than a tribal medicine man once the pharma/factories shut down

      in global terms, almost no one equates employment with the availability of raw energy input, being convinced that ”jobs” create gdp irrespective of their nature. FWorlsters know it, and a few others, but thats it. Poiliticos and economists reject that idea out of hand

      • correction—it wasn’t that they didn’t have the means

      • DJ says:

        You cannot demand what you cannot afford.

        Currently, in Sweden, you are guaranteed to meet a specialist within three months. A guarantee that many times is not met.

        So:
        Stomach pain
        Wait a week
        See a general practitioner
        Eat painkillers for a few weeks
        See general practitioner again
        Wait three months
        See specialist
        S/he tells you you are gonna die

        Now certain kinds of specialists are concentrated to a single hospital to increase competence.

        A baby is born to early, or whatever, needs helicopter transport to the speciality hospital. The helicopter is busy or out of business waiting for spare parts. Baby dies.

        THAT part of BAU lite will be easy to implement.

        • my point was that it will be demanded—affordable or not.—-especially if the wealthy are seen to be getting whatever it is they want

          and like much else all hell will break loose when it doesn’t appear—-always somebody’s fault you see—food fuel, healthcare, jobs—you name it

        • The life expectancy in Sweden is better than in the US, even with these health system problems.http://www.infoplease.com/world/statistics/life-expectancy-country.html

          Sweden 81.98

          United States 79.68

          • Tango Oscar says:

            I’d wager that has to do with the standard American diet of potato chips and diet pepsi moreso than the healthcare system. That said, I don’t know what they typically eat in Sweden.

            • DJ says:

              I am surprised there is not a larger difference.

              I believe we have good healthcare, just did not agree healthcare must be provided under all circumstances.

              Standard American Diet, but smaller portion size I believe and some even DO eat their five recommended daily portions of fruit/veggies.

              I think all western countries is about the same, horrible diets, sedentary lives, obese, everyone past a certain age on medications and health care being good on keeping people barely alive.

            • yngso says:

              DJ, some countries are worse than the rest, the US, UK and Mexico(!) stand out. You’d be surprised at how many Indians are obese, and many Arabs are too because of ther similar starchy and sweet diets.

            • Fast Eddy says:

              DOHA, Qatar — For such a small country, a finger of sand poking into the Persian Gulf from the eastern side of the Arabian Peninsula, Qatar is a land of big numbers.

              It has the second highest per capita gross domestic product in the world and the third largest proven reserves of natural gas. But it also ranks high in some less enviable categories, having among the greatest prevalence of obesity, diabetes and genetic disorders in the world, according to international and local health experts.

              Native Qataris, who number only about 250,000 in a nation of 1.6 million, are suffering serious health problems that relate directly to a privileged lifestyle paid for with the nation’s oil wealth, as well as a determination to hold onto social traditions, like having young people marry their cousins.

              http://www.nytimes.com/2010/04/27/world/middleeast/27qatar.html?_r=0

              A nation of aristocrats…. dining on KFC and shagging their cousins….

              http://chrisspivey.org/wp-content/uploads/2013/06/Prince+Charles+HRH+Prince+Charles+Turns+60+qhCjEJDFq5Tx.jpg

      • xabier says:

        A friend who is a transplant surgeon observed in passing that ‘some consultants will have to accept that their specialism is going to be dropped.’ So some thinking on those lines is in the air in Britain at least,

    • DJ says:

      ” Even the Aztecs, Babylonians has way too many priests and artisans that needs to be supported by the productive society.”

      Sweden has more culture workers than farmers 🙂

    • I think what you are seeing is as much increased complexity as it is increased energy consumption. Citizens have only the amount that they earn or receive in transfer payments available to spend. If a mandate says that more money/energy must be spent on one thing, then less money/energy must be spent on other things.

      The US, EU, and Japan have had very flat energy consumption, especially recently. Part of this related to greater efficiency. A TV with a cathode ray tube display uses a whole lot more electricity than a flat screen TV. Same with monitors. Small devices tend to use less energy than large devices. Recent changes in light bulbs have made a difference as well.

      I would argue that what has made a huge difference in energy consumption is globalization, shift of manufacturing offshore, and rising world population. China, in particular, has spent a huge amount of money/energy on building new concrete high rise buildings for many of its citizens to live in. These buildings have electricity and indoor plumbing, which are two things that their prior living quarters generally did not have. The people now ride electric busses or trains to work, and there are far more paved roads and fancy new bridges.

      The World Trade Organization added China as a member in December 2001. You can see a “bend” in the graph, as their energy consumption rose!

      These are a couple of graphs showing trends in total energy consumption and in electricity consumption.

      total energy consumption for selected areas

      Total energy generated for selected areas

      • bandits101 says:

        A few thoughts……..
        Yes Globalization had a marked affect on the distribution of energy use. As your graph indicates Chindia energy use, especially coal “took off” as the western world adopted Globalization and its little brother “Off Shoring” in earnest. When oil was “discovered” debt was not required to exploit it, because there was no market.

        After the invention of the ICE, things changed. Oil was practically free, no debt needed there but after motor vehicles became popular EVERYTHING changed. Roads were demanded and required, debt was needed to purchase vehicles and trucks. Governments used bonds to fund infrastructure and at the same time found many new avenues of taxation. Many, many new supporting businesses supplied employment……..steel, service stations, rubber, spares, tourism and many others.

        Startup business mostly associated with the ICE industry prospered and bankrupted, there were ready made markets and many more created with marketing. As the exploitation with marketing of the ICE in the Western World, new markets were required to keep the ball rolling and banks alive.

        Globalization exploited the last bastion but of course it required not new forms of energy just the old standby of coal was good enough. The “last bastion” market are maybe close to attaining their zenith. As Gail points out “dimininishing returns” or EROI as applied to energy is making its presence felt….to put it mildly.

        • If it weren’t for the growth in China, India and the other countries with low wages and relatively cheap energy consumption, the world economy would have “tanked” long ago. Businesses saw cheap resources to exploit, and went after them. Part of their advantage is that most of these countries are in warmer areas of the earth, so that they do not need to build as substantial buildings, and they do not need to heat the buildings in winter.

          What I am talking about is a lot more than falling EROI.

  19. Fast Eddy says:

    Alcoa stock tumbles as profit, revenue miss expectations

    Quarterly revenue fell in the business making products for the automotive and aerospace industries, due partly to delays with new jet aircraft engines and pricing pressure, Alcoa said.

    Revenue fell to $5.2 billion from $5.6 billion a year earlier and was below estimates of $5.3 billion.

    It posted a higher third-quarter profit as cost-cutting offset lower revenue from curtailed or closed smelting operations and falling prices.

    http://www.reuters.com/article/us-alcoa-results-idUSKCN12B1H3

    So Q3 reporting starts off where Q2 left off…. that is a huge drop in revenues…

    And as expected Alcoa is slashing expenses as it battles to remain solvent…

    BAU is dying.

    http://www.toonpool.com/user/4146/files/death_on_the_installment_plan_472965.jpg

    • I see that Ericcson in shares in Sweden plunged 18% on profit warnings. WSJ – Ericsson Shares Plunge on Profit Warning

      The company said its third-quarter earnings will be “significantly lower” than expected, citing a 19% sales decline in its core mobile-network equipment business.

      The news sent the company’s share price down as much as 18% Wednesday morning.

      Ericsson is being hit hard as spending by mobile-service providers on latest-generation, or 4G, networks has largely dried up, with most mobile-broadband projects having been completed last year. At the same time, competition has risen, with Huawei Technologies Co. of China expanding aggressively on the traditional European turf of Ericsson and Finland’s Nokia Corp.

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  23. Jeff Hubbs says:

    Excellent post, Gail. One of the points I make early in my presentation on storage of solar PV energy is that for renewables like solar PV, high intermittency low dispatchability, and low reliability combine to suggest low *quality* and it is only reasonable that a lower-quality good is a *less valuable* good. I then go on to show how converting this low-quality good into a high-quality good that could become our exclusive source of electricity in a BAU regime would require an absolutely mind-numbing expenditure (“investment” doesn’t even seem like the right word) in infrastructure – one that many would have us bear the cost of distributively via batteries in our homes and in our cars. So one driver of lower energy process going forward may be a reduction of quality and therefore value of the energy supply as proportionally more of it moves toward intermittent renewables.

    • To give you something to think about, this is a graph of monthly US natural gas consumption and extraction. There are huge increases in natural gas consumption in the winter months, relative to the summer months. If we were to try to replace this source of energy with solar energy, we would need an unimaginable amount of long-term batteries (if there is such a thing!), in addition an unimaginable number of solar panels. Intermittent energy doesn’t solve our basic heat need during the winter! This is one of our largest types of energy needs; it was what led to cutting down forests, and a real need for coal.

      US natural gas consumption by month

      • Jarvis says:

        One important fact the advocates of battery storage fail to mention is if you want your battery to last more the 5 years you should keep the depth of discharge to around 20% of the battery total capacity. With my $10,000 7KWH battery I get 1.5 KWH useable!

        • greg machala says:

          So, I wonder if the Tesla shuts off early as well? If that is the case, maybe they could theoretically travel much much farther on a charge. But, battery life would be reduced.

          • Fast Eddy says:

            Having established a fast-charging foothold in California for its electric cars, Tesla Motors has brought its formula east, opening two ultrafast charging stations in December that would, in theory, allow a speedy electric-car road trip between here and Boston.

            But as I discovered on a recent test drive of the company’s high-performance Model S sedan, theory can be trumped by reality, especially when Northeast temperatures plunge.

            http://www.nytimes.com/2013/02/10/automobiles/stalled-on-the-ev-highway.html?_r=0

          • Ert says:

            “So, I wonder if the Tesla shuts off early as well?”

            No, they go down quite a bit (approx. down to 20%)… and with an extra option you can go down to 7%!. And one supercharger loading (with 120KW) stresses the battery as much as 10 normal charges. 100 supercharger loads can basically damage the battery down to 70% of the nominal capacity….

            Therefor Tesla also scrapped the warranty scheme for their PowerWall product…..

            So wait until the Teslas get 5-8 years old…. that will be a lot of fun to watch 🙂

            • Fast Eddy says:

              Tesla – Snake Oil on Wheels

            • Ert says:

              @FE

              You get what you pay for… you pay an “ludicrous” amount of money and you get an top of the line, ultra-horsepower, ultra luxury, ultra resource intensive vehicle.

              That that issue with the battery? I mean…. you knew beforehand! Look at your iPhone, camera, Handset and the like… which battery lasts 10 years? And if… how much capacity remains?

            • Fast Eddy says:

              I dont consider a Tesla a top of the line vehicle…. http://www.nytimes.com/2013/02/10/automobiles/stalled-on-the-ev-highway.html?_r=0

              The list of issues also includes more significant problems, which could be pricey to fix once out of warranty. Based on survey responses, Tesla has made a habit of replacing the car’s electric motors. The brake rotors tend to warp. And the door handles often fail to “present” themselves as drivers approach their cars.

              Those automatically retractable door handles are a signature element of Tesla vehicles, but when they don’t work they effectively lock drivers out. (We had this problem with our Model S P85D.)
              Other problem areas include:

              Inoperable wipers
              Leaking battery cooling pumps
              Out-of-alignment trunk and hatchback latches
              Persistent wheel-alignment issues

              http://www.consumerreports.org/cars/tesla-reliability-doesnt-match-its-high-performance/

              100K+ … for that?

            • meliorismnow says:

              Phone/laptop batteries don’t last 10 years because their owners want to use 100% of capacity and want to leave the thing plugged in overnight. If they only charged to 85% and never let the phone get below 15% and trickle charged it the battery would degrade ~3%/yr. Better yet, the manufacturer could build all that standard into the phone! But then they’d sell less units because people don’t care about longevity, they care about convenience. EVs like the LEAF had a 80% charge option you could select but then the EPA decided to use the 80% option to determine driving range so Nissan removed it…so owners are damaging their batteries.

            • Ert says:

              @FE

              “100K+ … for that?”

              The article is 3,5 years old. But still, was an interesting read. There is much silence about the general EV battery performance in sub-zero Celsius temperature ranges. I know from my E-bike LiMn batteries that I am not allowed/advides to operate them below 5 degrees C without “conditioning” (meaning: warming them up inside…)

              @meliorismnow

              I know of the tricks to get the degradation of the battery low… but for me it is a fake when someone sells me a 400Wh E-Bike or a 85KWh car battery where I can only use 65% effectively! And even then I must take care, that the battery is not charged up in times i don’t drive… but instead best only a short time before the journey begins…. as otherwise the cell chemistry also takes a bigger toll.

            • Fast Eddy says:

              As you can see from the consumer report article from the past year — the car is confirmed to be a lemon….

        • I just had the electricity go out in my home. This is a fairly frequent occurrence (greater than 1 time per month).

          The backup battery in the surge protector I added failed as well. Of course, it gives no warning it is going to fail. I plan to go get a new surge protector-battery, because this kind of occurrence is annoying. If you know what you are doing, I suppose you can test the batteries from time to time. Otherwise, this kind of event is pretty much expected.

          • CTG says:

            Fairly frequent? Why? your house? local infrastructure? Kind of interesting for it to happen in a developed country.

            • MG says:

              We have had such occurences some time ago, too. The electricity supplier had to install newer and stronger transformer in our part of village (I am not sure, probably 22/0,4kV transformer from high voltage lines to low voltge lines that distribute the electricity into homes in Slovakia), as the former one was too weak to power the increased demand and suffered stability issues. I noticed the improvement in quality of the supplied electricity especially when using the welding inverter.

            • Our electric power lines are all above ground, so they are easily damaged by storms. Many of the outages seem to have other causes–perhaps related to construction in the area, for example. We never know why there is a power outage.

      • Jeff Hubbs says:

        Gail –
        In my analysis I stuck strictly to meeting BAU Georgia *electrical* demand only. I started with US Southeast states but my already colossal storage flywheel (hint: enjoy the hike up Stone Mountain while you still can!!) would have to turn at speeds that I’m pretty sure were wholly unreachable. If the goal were to meet the state’s *entire* energy demand with solar PV at anything remotely resembling BAU – well, forget it. Not to say that we *couldn’t* get by on solar energy alone; pre-colonial America seems to have managed.

        • For what it is worth, this is an EIA graph of Georgia electricity generation by month. It does not have very high peaks, and the peak that does occur is mainly in the summer. We would have a very big problem in some other places–even Georgia.

          https://gailtheactuary.files.wordpress.com/2016/10/georgia-electricity-generation-by-month.png

          • Jeff Hubbs says:

            Gail –
            I was able to get a *demand* (not generation) curve for the Energy Reliability Council of Texas (ERCOT – covers at least 90% of the state) at hourly resolution for all of 2015 and rescaled it until its integral matched the published total demand for Georgia for that year; that became my proxy for hourly Georgia demand for that same year (similar geographical latitude; plenty of room to quibble about differences but the rescaling pretty much paves over them). My supply curve started as an insolation curve as measured by a station in Colorado, also for 2015 but at 15-minute resolution. After doing the time-shifting of both curves to Eastern time and putting the time resolutions on the same basis, I rescaled the insolation curve (initially in arbitrary units) until its integral matched the Georgia total demand plus six percent (the typically-cited value for distribution and transmission losses) and set my flywheel system transfer efficiency to 90 percent. Turned out that wasn’t enough to keep the flywheel going; eventually the hour would come where the flywheel didn’t have enough energy in it to supply that hour’s demand so an oversupply factor of 1.06 wasn’t enough. Furthermore, it turned out that the oversupply factor “sweet spot” for a 90-percent-efficient flywheel was around twelve, i.e., an annual solar PV generation energy twelve times larger than the annual demand energy. That scared me, because there’s nothing about that relationship that was based on the storage method being a flywheel – a system of hamsters on treadmills with 90 percent transfer efficiency would be no different. Interestingly, if transfer efficiency got higher and higher, the range of usable oversupply factors (i.e., between rundown and runaway) got narrower and narrower to the point where at 100% efficiency the gap was less than one part in 100,000.

            • So, if I understand you correctly, to take care of the seasonal intermittency, you needed to scale up the amount of solar panels to 12 times the amount you would otherwise use for Georgia. You planned to keep electricity from summer to winter, if necessary, but were assuming only a 10% loss (= 90% efficiency) in saving electricity (but this could happen many times). I am sure that no one is assuming that such a huge amount of generation would be needed.

              I have heard that in Georgia, winter heating needs are greater than summer cooling needs, but this wouldn’t really affect your calculation, because you are only looking at electricity needs, and quite a bit of heating comes from natural gas.

  24. CTG says:

    Supply chain – please click on http://www.zerohedge.com/news/2016-10-11/samsung-ends-galaxy-note-7-production-pulls-model-market

    Samsung shares had fallen 9% Tuesday, wiping out almost $20 billion of market value, as the Samsung supply-chain get whacked. According to Bloomberg calculations, Samsung Electronics’ and its partmakers’ operating profit could fall by 1.5t-2t won ($1.3b-$1.8b) after the halt on Note 7 sales. Samsung may lose 1.1t-1.3t in operating profit, while Note 7 issue will have a “significant” impact on markets as Samsung and its supply chain constitutes about a third of South Korea’s market cap.

    For highly complex parts like phones, cars, machines, the supply chain is very long and complex. Just for one phone, the disruption can be this large. Think about other types of disruptions and how “BAU Lite”, martial law, bank shutdowns, financial meltdowns will cause widespread chaos.

    • Batteries are a lot tricker that people think.

      Somewhat related: Historically, our big energy problem has been the need to heat homes, offices, and factories during the winter months. Solar panels are of little help in doing this. Someone suggested to me that we should be making batteries for very long term energy storage, to try to solve this problem. Then I think of the Samsung battery problem (and the earlier battery problem for the Boeing 787 Dreamliner) and I think, “You have got to be kidding!” We can’t handle the little batteries we have now. We would be starting large fires, besides using incredible amounts of raw materials, and losing a lot of electricity in the process.

      • CTG says:

        The best battery that we have now was charged by the sun millions of years ago – crude oil !

        • greg machala says:

          Yeah people forget that fossil fuels are very much like an extremely energy dense battery . They are liquid though. But, you can pour it in almost any tank and run a motor off it any time of day. Wonderful stuff.

        • Coal has historically been a whole lot cheaper than oil. It is what started the industrial revolution, and allowed us to continue economic growth (at least somewhat) since 2002. I would argue that coal has been the best battery, and oil has been a close runner up. We are now running short of good quality coal in cheap to access locations.

          World energy consumption

          China energy consumption by fuel

          Oil has been important too, but I think people have been too focused on it. Oil as a percentage of total energy consumption has been falling since the late 1970s.

          High cost energy causes economics to shrink

        • name says:

          “Tesla Wins $100M Award for 80MWh SoCal Edison Battery Storage”

          http://www.breitbart.com/california/2016/09/19/tesla-wins-100m-award-80mwh-socal-edison-battery-storage/
          100 millions usd for 80MWh? You can get 80MWh from one train car of coal which costs 3000 usd.

          • Fast Eddy says:

            Conveniently nowhere to post your comment below the article …. the matrix must be preserved!

            While we are on the topic of ‘renewable’ idiocy… the guy was here today suggesting solar heated water for the new ‘wing’ on the doomsday home …. I was questioning the pay back period and his response was…. well there is of course the green aspect of solar to consider…

            I said …. ya well… China burns coal to make the panels… or we burn the coal here to produce electricity…. and based on the cost of the solar option … that implies it is far greener to use electricity produced directly from burning coal to heat a boiler and spin a turbine…

            He said … ya I guess that’s right….

      • Jon Wesenberg says:

        Lithium-ion (Li-ion) cells are probably not the best choice for utility-scale backup. They’re much better suited to vehicles, tools and portable electronics due to ruggedness, useful life, cost and safety. Most of the really big batteries (a battery being a connected set of cells, which are the discrete, individual units therein) used for that are either flow batteries, which are recharged by renewing a liquid, or sodium-sulfur batteries, which are very efficient but need to be heated to 300°C or higher. Regardless of the cell type, the size and cost of a large enough quantity of batteries to back up the US grid at the current (unsustainable) rate of power consumption to allow the use of only renewable energy would consume trillions of dollars and hundreds of square miles. There are other storage methods, such as pumped hydro (filling and draining a reservoir with a dam and motor/generator) or power storage trains, which would use a motor/generator to pull a heavy train uphill to store energy and run it back downhill to release it. Both of those rely on favorable geography, and as with huge batteries, lots of space and money to build.

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  32. CTG says:

    Gail – good post. I will be copying over my last comment which was long and got stuck after the magical 2000+ limit commenting…

  33. Fast Eddy says:

    “I’m finishing 1,000sqft of the basement in my 3000sqft house in the exurbs. I am basically living a stereotypical high consumption lifestyle, while simultaneously buying all of the chattel accoutrements of a survivalist. My wife and I are both professionals, and if we get to the point where we can’t survive financially, the Courts will have long been clogged with foreclosures, collection actions, etc. As an attorney, I feel confident that I can drag out any foreclosure or collection proceedings for several years.

    Basically, I have accepted that this high consumption lifestyle can’t last, wasn’t ever going to last, and have made peace with the fact that it is going away. I am going to eat the steak and drink the wine as long as possible, and when/if forced, give a stiff middle finger to my creditors. I’ll walk away confident in the knowledge that it wasn’t ever going to end any other way. I’ve been poor before, and can survive being poor again. Frankly, I suspect I have clawed my way high enough up the food chain that society would break down before I would get booted to the streets.”

    Karl – I am with you on all of this …. I have no concerns about debt other than I would want to be confident that I can service the debt till end of days arrives…. because when that day arrives… it will not matter if one has debt or no debt…. the financial system will be vapourized…

    So as an amateur not- registered investment advisor I would be telling my clients if I had any… to run up some debt if it means enjoying the final months of life… absolutely do not try to pay down debt and sacrifice ….

    That would be a HUGE mistake.

    • karl says:

      Hallelujah, Fast Eddy and I agree on something!

    • DJ says:

      So, according to Fast Eddy Advisors, if you expect absolutely max 10 years more and can borrow to 3 % interest you should max out the loan, stuff 30% away in cash for interest payments, spend the rest and keep it in gold for medium term savings?

      If the world has not ended in 10 years, you borrow twice as much, use half to pay back the loan …

  34. Dave Pollard says:

    Thanks Gail. I’d be interested in your thoughts about the impact of sagging energy prices on the Canadian dollar, which (relative to the $US) tends to track brent crude price almost in lockstep. What can Canadians do who like to travel to the US and buy goods at US prices? Our economy is actually slightly more resilient and healthier than the US economy — oil isn’t nearly as important to our economy as the currency day-traders seem to think — but currency prices ignore this fact. Falling energy prices suggests the $CA will fall from its pathetic current $0.75 level back to its record-low $0.60 level and then stay there. Should we be prepared to shift currencies during the next oil price spike to hedge against this, or are there more sensible ways to deal with our hostage-to-speculators currency?

    • Good question! I remember when the Canadian dollar was worth a little more than a US dollar.

      If you think that the Canadian dollar is going to fall further, you could in theory convert some cash to US dollars whenever oil prices are relatively high, and then convert it back after the drop. The problem is that an awfully lot of what you buy comes from the US –food, oil, and some manufactured goods, so that you have quite a bit that you buy that is affected. Also, the Chinese yuan tends to be high as well. Money changers seem to want a lot for the service. Your solution seems to be as good as any.

      Some version of this story is happening in quite a few commodity exporting countries around the world. No wonder so many countries are acting as if their countries are in recession! A lot of goods become less affordable.

      • Fast Eddy says:

        I mentioned this a few months ago — a Canadian friend of mine was questioning why I had accumulated physical gold …. I told him that I was not investing …not trading.. not trying to make money…. I was holding gold because it is a better store of wealth than cash…

        How so he said…

        Well … if he had converted his cash to gold before the CDN crashed by 30%… he would not have lost 30%….

        Nothing is fool proof… but I prefer to hold gold over fiat…

  35. Thanks, Gail, for your analysis. It would be nice to get a graph like Fig 3 just for oil and another one for coal. China’s contribution to world GDP was mainly driven by coal in the last 15 years.
    https://www.eia.gov/todayinenergy/detail.php?id=16271
    and
    http://www.eia.gov/todayinenergy/detail.php?id=22952

    • Before oil, nearly all of our fossil fuel energy came from coal. So up until World War II, total energy was mostly coal, with a little hydroelectric. Thus, the early part of Exhibit 3 already on close to a coal basis.

      It is only in recent years that there has been a split. These are a few slides that I have used in presentations but didn’t include.

      Energy consumption by region

      I didn’t break out Japan in the above slide, but it would have been another flat pancake, with respect to energy consumption.

      Usual cost level breakdown

      In the next slide, the header needs to be read “World minus US minus EU energy consumption by cost level.” In other words, this is the remainder of the total. Notice how it has much faster growth in low cost oil supplies, and much faster overall growth.

      Cost mix varies by part of the world

      Countries that can ramp up cheap energy supplies have a huge advantage

      Percent change in real GDP by part of the world

      China energy consumption by fuel

  36. common phenomenon says:

    Here is a piece of high art to celebrate Gail’s new post. The performance has lots of relevance for us: it includes a woman, of Nordic heritage no less, just like Gail herself. What red-blooded man could resist the most beauteous and horny Brunnhilde? Why can’t our modern fashion designers take a leaf out of her book? Anyway, let’s all join in and give a raspberry to the delusi-stanis and anybody else from any country whose name ends in “-stan”. After the end of BAU and the starvation of all those who are going to starve, those of us who are left can rediscover the joys of fresh fruit, instead of the vile varieties of manufactured sugar that we are all currently forced to consume.

    https://www.youtube.com/watch?v=p-IU-NQ8c14

    EVERYTHING IS FRESH TODAY

    Jack Hodges (with Sid Geening & His Band)

    In a little town where I belong
    There’s a most accomplished fellow
    He’s the leader of the village choir
    And his voice is warm and mellow

    He drives a fruit cart round the street
    And everybody knows it
    He doesn’t sing or rave about his fruit
    He simply blows it

    He’s doing it all day long
    It’s better than any song
    Though it isn’t very pretty
    You’ve got to admit it’s cute
    So, all together, let it go
    Eat more fruit

    It’s certainly come to stay
    It’s a treat to hear him say
    Hey, fruit’s in season, plenty berries
    Apples, plums and the old raspberries
    Everything is fresh today

    Every Friday night when work is done
    He never wastes a minute
    To the village hall he hurries round
    Where he sings just like a linnet

    To hear him blow a melody
    It’s great, you can’t deny it
    And if you’ve nothing else to do
    I’d like you all to try it

    Get ready and do it now
    It’s easy when you know how
    Though it isn’t very pretty
    You’ve got to admit it’s cute

    So, all together, let it go
    Eat more fruit
    It’s certainly come to stay
    It’s a treat to hear him say
    Hey, do-te-la-so-fa-me-re-do
    Everything is fresh today

    It’s certainly come to stay
    It’s a treat to hear him say
    Hey, fruit’s in season, plenty berries
    Apples, plums and the old raspberries
    Everything is fresh today

  37. Yoshua says:

    file:///C:/Users/Q/Pictures/w.jpg

    Don’t know what this means… but it’s kind of creepy.

  38. Doug W. says:

    Another good post. Your blog should be required reading for our political leaders. One of my biggest frustrations is the lack of discussion about the central issues of our time in this campaign.

    • Fast Eddy says:

      Do you think that if they read this they could solve the problem?

      • Tim Groves says:

        Gail has spelt out her opinion on the likelihood of finding a solution unequivocally this time. I can’t imagine any politician of any stripe going within a mile of this analysis while on the campaign trail. Part of the job description is that they are obliged to promise the voters better times ahead.

        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.

    • If any of you know the candidates or their staffs personally, please send a link to them. I am well connected in the blogosphere, but not to politicians.

    • CTG says:

      If you study history and read between the lines, you will realize that all of them have the same beginning and ending. It is just a matter what happens in between the start and the end.

  39. Interguru says:

    Gail: Thanks for the new post.

  40. 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

  41. 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….

  42. 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:

        https://www.wired.com/2016/03/teslas-electric-cars-might-not-green-think/

        • 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.

              https://electrek.co/2016/06/06/tesla-model-s-battery-pack-data-degradation/

            • 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:

              https://cdn0.iconfinder.com/data/icons/sport-balls/512/gold_medal.png

              https://media.licdn.com/mpr/mpr/p/2/005/078/212/3c36c7f.jpg

            • Fast Eddy says:

              DEPRECIATION

              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
              http://www.reuters.com/article/us-tesla-prices-idUSKCN0ZT1HH

              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.

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

  44. 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….

    http://www.tv360nigeria.com/wp-content/uploads/2015/10/NOBEL-PRIZE-.jpg

    • 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.

  45. 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.

  46. 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.

  47. 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.”

      http://www.naturalgasintel.com/articles/107809-big-oil-exploration-evolving-no-longer-elephant-hunting

      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.

      https://www.bloomberg.com/gadfly/articles/2016-09-30/big-oil-reserve-replacement-price-gains-won-t-help-much

      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 …

      • 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.

  48. Veggie says:

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

  49. 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.
      http://www.eia.gov/petroleum/gasdiesel/

      • 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

        http://quotes.lifehack.org/media/quotes/quote-Jalal-Talabani-wishful-thinking-is-one-thing-and-reality-98680.png

        • 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!

          http://images-cdn.9gag.com/photo/561415_700b.jpg

          • 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:

          Interesting…

          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.
            https://sv.m.wikipedia.org/wiki/Fjällko

            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:

              @Tango

              “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….

              http://cdn.zmescience.com/wp-content/uploads/2014/08/starvation.jpg

            • 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…