Our Energy Problem Is a Quantity Problem

(This post consists of a short overview article I recently wrote for Transform, a magazine for Environment and Sustainability Professionals, plus six related Questions and Answers.)

Reading many of today’s energy articles, it is easy to get the impression that our energy problem is a quality problem—some energy is polluting; other energy is hoped to be less polluting.

There is a different issue that we are not being told about. It is the fact that having enough energy is terribly important, as well. Total world energy consumption has risen quickly over time.

Figure 1. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects and together with BP Statistical Data for years 1965 and subsequent.

In fact, the amount of energy consumed, on average, by each person (also called “per capita”) has continued to rise, except for two flat periods.

Figure 2. World per Capita Energy Consumption with two circles relating to flat consumption. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent, divided by population estimates by Angus Maddison.

There is a good reason why energy consumed has risen over time on a per capita basis. Every human being needs energy products, as does every business. Energy is what allows food to be cooked and homes to be heated. Energy products allow businesses to manufacture and transport goods. Without energy products of all kinds, workers would be less productive in their jobs. Thus, it would be hard for the world economy to grow.

When energy consumption per capita is rising, it is easy for workers to become more productive because the economy is building more tools (broadly defined) for them to use, making their work easier. Manufacturing cell phones and computers requires energy. Even things like roads, pipelines, and electricity transmission lines are built using energy.

Once energy consumption growth flattens, as it did in the 1920-1940 period, the world economy is negatively affected. The Great Depression of the 1930s occurred during the 1920-1940 period. Problems, in fact, started even earlier. Coal production in the United Kingdom started to drop in 1914, the same year that World War I began. The Great Depression didn’t end until World War II, which was immediately after the 1920-1940 period.

In the 1920-1940 period, many people, especially farmers, were not able to earn an adequate living. This is a situation not too different from the one today, in which many young people are not able to earn an adequate living. Strange as it may seem, this type of wage disparity is a sign of inadequate energy per capita, because jobs that pay well require energy consumption.

The 1980-2000 flat period was in many ways not as bad as the earlier one, because the lack of growth in energy consumption was planned. The United States changed to smaller, more energy-efficient cars in order to reduce the amount of gasoline consumed. Oil-powered electricity generation was taken out of service and replaced with other types of generation, such as nuclear. Heating of homes and businesses was changed to more efficient systems that did not burn oil.

The indirect effect of the planned reduction in oil consumption was a drop in oil prices. Low oil prices adversely affected all oil exporters, but the Soviet Union was especially affected. Its central government collapsed, at least partly because of its reduced revenue stream. Member republics continued to operate, somewhat as in the past. Russia and Ukraine cut back greatly on their industrialization, leading to less use of energy products. Population tended to drop, as citizens found better work prospects elsewhere.

Eventually, in the early 2000s, oil prices rose again. Russia was able to become a major oil exporter again, but Ukraine and other industrialized areas were permanently handicapped by the collapse. Countries affiliated with the Soviet Union (including Eastern European countries, North Korea, and Cuba) found themselves permanently lagging behind the US and Western Europe.

Recently (2013-2017), the world economy seems to have again reached a period of flat energy consumption, on a per capita basis.

Figure 3. Based on data of BP Statistical Review of World Energy, 2017, and 2017 UN Population Estimates.

In fact, in many ways the flattening looks like that of the 1920 to 1940 period. Increased wage disparity is again becoming a problem. Oil gluts are again becoming a problem, because those at the bottom of the wage hierarchy cannot afford goods using oil, such as motorcycles. Young people are finding their standards of living falling relative to the living standards of their parents. They cannot afford to buy a home and have a family. Governments are becoming less interested in cooperating with other governments.

Why is world energy consumption per capita flat, or actually falling slightly, after 2013? The answer seems to be diminishing returns with respect to coal production. Diminishing returns refers to the fact that while at first coal is inexpensive to extract, the cost of extraction rises after the thickest seams and those closest to the surface have been extracted.

A chart of China’s energy production shows how China’s coal production first rose as low cost made its usage advantageous, and then fell due to diminishing returns. China experienced a major ramp-up in coal production after it was added to the World Trade Organization in 2001.

Figure 4. China’s energy production, based on data from BP Statistical Review of World Energy, 2017.

As the extraction of coal progressed, China found itself with many mines with rising production costs. Coal prices did not rise to match the higher cost of production, so a large number of unprofitable mines were closed, starting in about 2012.

A major reason for the flat world per capita energy consumption starting in 2013 is the fall in China’s coal production after 2013. Coal production is falling in quite a number of other countries as well, as the cost of production rises, and as users become aware of coal’s environmental issues. Other sources of energy have not been rising sufficiently to keep total per capita energy consumption rising. A person can see in the China chart that wind and solar production are not rising sufficiently to offset its loss of coal production. (Wind and solar are part of Other Renewables.) This situation occurs elsewhere, as well.

What role do wind and solar play in maintaining world energy supply? The truth is, very little. While a great deal of money has been spent building them, wind and solar together amounted to only about 1% of total world primary energy supply in 2015, according to the International Energy Association.

A major problem is that wind and solar do not scale well. As larger quantities are added to electricity networks, more workarounds for their intermittency (such as batteries and long distance transmission) are needed. Bid prices for wind and solar give a misleadingly low impression of their real cost, unless the projects include many hours’ worth of storage to offset the impact of intermittency.

The key to rising energy consumption seems to be the falling cost of energy services, when efficiency is included. For example, the cost of delivering a package of a given size a given distance must be falling, relative to inflation. Similarly, the cost of heating a home of a given size must be falling. Governments must be able to tax producers of energy products, rather than providing subsidies.

Globalization requires ever-expanding energy supplies to meet the needs of a rising world population. To maintain globalization, we need a growing supply of energy products that are very cheap and scalable. Unfortunately, wind and solar don’t seem to meet our needs. Fossil fuels are no longer cheap to extract, because we extracted the resources that were least expensive to extract first. Our problem today is that we have not been able to find substitutes that are sufficiently cheap, non-polluting, and scalable.

A Few Related Questions and Answers:

(1) What is the biggest impediment to raising total energy consumption?

We cannot get the price of oil and of other fuels to rise high enough, for long enough, to encourage the production of the fossil fuel supplies that seem to be in the ground. What happens, instead, is that energy prices hit an affordability limit and fall back.

Figure 5. NASDAQ three month price chart for Brent Crude oil. Source: NASDAQ

The recent strike in Brazil over high diesel prices shows the kind of issues that occur. Oil prices are still far below what many oil exporters (such as Norway, Venezuela, and Iraq) really need, when needed taxes are included.

Of course, the problem with not being able to get prices high enough also discourages the use of alternatives to fossil fuels, such as wind and solar.

(2) Aren’t wind and solar low-cost approaches?

It is easy to think that wind and solar will be huge improvements over burning fossil fuels directly for fuel, but nearly all of these analyses overlook the problems that are added by introducing intermittency to the electric grid. The assumption was made in early analyses that with enough scale, intermittency in one location would tend to offset intermittency in another location. Also, it was hoped that electricity consumption could be shifted to different times of day.

There have been several recent analyses that look more closely at these assumptions. Jean-Marc Jancovici has shown that if sufficient storage is added for wind and solar to make it “dispatchable,” it takes an order of magnitude more physical resources to produce wind and solar compared to what it takes to produce the dispatchable nuclear electricity used in France. Both have low long-term operating costs. Thus, we would expect the true cost of wind and solar to be far higher than France’s nuclear electricity.

Roger Andrews, writing on Euan Mearns site Energy Matters, shows that some recent solar and wind auction prices appear to be far below actual costs, when reasonable minimum cost assumptions are used.

Regarding “Demand Response” as a solution to intermittency, Roger Andrews shows how little time of day pricing for consumers affects consumption curves. It appears that people don’t stop eating dinner after they get home in the evening, no matter how high the cost of electricity is at that time.

Interruptible supply is another way of reducing demand. This link describes some of the issues encountered when interruptible supply was tried on a large scale in California.

(3) Can’t we simply get along using less energy? That is what everyone tells us is possible.

The historical record in Figure 2 doesn’t give much indication that this is possible. Whenever there is even a small drop in energy consumption per capita, it seems to have an adverse effect. On Figure 3, even the small dip in energy consumption per capita in 2008 and 2009 led to a serious recession in many countries of the world.

The people who talk about getting along with less energy haven’t thought through the likely ramifications of this. There would be fewer jobs that pay well, because jobs such as those for construction workers would disappear. The economy would shrink, because of the fewer jobs, in a much worse recession than the Great Recession of 2008-2009.

We know that in past collapses, one of the big problems was inability of governments to collect enough taxes. We would likely encounter the same problem again, if there are fewer people making high wages. Most of the tax dollars for the US Federal Government are paid by private citizens (as income taxes or as Social Security funding), rather than by corporations.

Figure 7. Sources of US Federal Governments Revenue, based on US Bureau of Economic Analysis data.

The last year shown on Figure 7 is 2017, which is before the recent corporate tax reduction. This change will tend to shift the burden on Federal Taxes even further in the direction of payroll related taxes.

(4) How about efficiency savings? Can’t efficiency savings fix our problem?

There are two issues involved. If we were really efficient at fuel savings, as we were in the early 1980s, oil and other energy prices would drop dramatically. This would push oil, coal, and gas producers worldwide toward bankruptcy. Governments of oil exporting countries, such as Venezuela and Saudi Arabia, would have difficulty collecting enough tax revenue. They would likely collapse from lack of tax revenue, substantially reducing supply.

A second issue is that historically we have been adding efficiency. In fact, efficiency is what has tended to make fuel more affordable. As noted in the article, energy use could grow, as the cost of energy services fell.

Figure 8. Total Cost of Energy and Energy Services, by Roger Fouquet, from Divergences in Long Run Trends in the Prices of Energy and Energy Services. The cost of energy services combines (a) the cost of energy with (b) the impact of efficiency savings.

Some of the changes we have been making recently go in the opposite direction of efficiency. For example, the recent article, Biggest Ever Change in Oil Markets Could Send Prices Higher, discusses a new regulation requiring the use of low-sulfur fuel oil for ships. Doing this would greatly reduce the quantity of sulfur being released to the atmosphere as emissions. This is not a change toward efficiency; it is a change toward higher cost of production, which is the opposite of efficiency. Regulators plan to use part of our energy supply to eliminate the excess sulfur before the oil is sold.

As undesirable as sulfur pollution is, the problem is affordability and higher cost. Wages are not high enough for workers around the world to afford the required higher cost of food (because food production and transport use oil) to support the new regulation. So, the likely result of the regulation is to push the world toward recession. Beyond a certain affordability point, it is hard to push oil prices higher, because wages don’t rise at the same time.

(5) Could you explain further why flat energy consumption per capita is not sufficient for the world economy–this amount really has to grow?

Perhaps looking at charts of recent trends in energy consumption of a few countries can help explain what happens when overall per capita energy consumption is flat.

Joseph Tainter in The Collapse of Complex Societies explains that economies often use “complexity” to work around problems as they approach resource limits. In the particular version of complexity tried in this case, manufacturing was increasingly globalized. Workers suddenly found themselves competing for wages with workers from much lower wage countries. Wage disparity became more of a problem.

When workers are increasingly poor, they can afford to purchase fewer goods and services. This can be seen in energy consumption per capita data. Figure 9 shows energy consumption per capita for three European countries experiencing difficulties. In all three, energy consumption per capita has been falling for several years. When manufacturing was sent to Asia, workers found themselves earning less, so they were able to purchase fewer goods made with energy products. Also, European products were less competitive on the world market, with the new competition from low-cost markets.

Figure 9. Energy Consumption per Capita for three European Countries, based on BP Statistical Review of World Energy data and UN 2017 population estimates.

The countries that have been able to grow more rapidly in response to globalization (such as those in Figure 10) need to keep up their patterns of growth, or they start encountering financial problems because their prior growth was generally financed with debt. Without sufficiently rapid growth, they have difficulty repaying debt with interest.

Figure 10. Energy Consumption per Capita for five countries that recently have been growing rapidly. Based on BP Statistical Review of World Energy data and UN 2017 population estimates.

Brazil’s energy consumption per capita has recently fallen, and it is encountering severe problems. Argentina is a country with flattening energy consumption growth. China’s growth in energy consumption has slowed as well; we often read statements about its debt problems.

One of the problems that these rapidly growing countries encounter is currency fluctuations. As long as their particular country seems to be growing rapidly, the currency level of their country can remain high, relative to the US dollar or the Euro. But if obstacles are encountered, such as the low price of their major export, or slower economic growth, the currency of the country may fall relative to major currencies.

A falling currency relative to major currencies is a problem for these rapidly growing countries for three reasons. For one, imports become expensive. For another, any debt denominated in a foreign currency (such as the US dollar) becomes more difficult to repay. The reason why this is an issue is because rapidly growing countries often do not find enough credit available locally, so are forced to borrow internationally. A third problem with slowing growth and a falling currency relativity is that it becomes more difficult to attract new investment to the country. Instead, outside investors may decide to leave; they want to seek the next growth opportunity, in different, more rapidly growing country.

Turkey and Argentina both seem to be having problems with their currencies falling relative to the US dollar.

Another issue that makes flat worldwide per capita energy consumption unworkable is “diminishing returns” as resources become depleted. For example, wells for fresh water must be dug deeper, ores of metals include higher percentages of waste materials, and oil wells must be sunk in less convenient locations. These problems can be worked around, but they require increased energy consumption. All of these uses for energy products leave less for the rest of the economy. Thus, if we deduct the extra energy needed to compensate for diminishing returns, what at first looks like flat per capita energy consumption worldwide really equates to declining per capita energy consumption.

(6) Isn’t there anything that we can do to reduce carbon dioxide emissions?

The task of reducing carbon dioxide emissions is much more difficult than it appears to be, because the world economy requires energy consumption in order to operate.

The best thing I can see that an individual can do is reduce his or her consumption of meat and other animal products (fish, cheese, milk, leather). To offset, a major increase should be made in the consumption of vegetables that are filling to eat (such as potatoes, beets, carrots, beans, sweet potatoes, taro root, turnips, and corn). Some of these perhaps can be grown locally. Humans’ use of animal products adds to carbon dioxide levels, partly because of the quantity of food that needs to be grown and transported to feed the animals, and partly because of the direct emissions of some animals (including cattle, pigs, buffalo, chicken, sheep and goats).

In fact, cutting back on highly processed food of all sorts (particularly sugars, high fructose corn syrup, and oils) would seem to be worthwhile, as well. Growing, processing, and transporting the crops used in these highly processed foods all add to CO2 emissions.

Our problem is that we have grown attached to the flavors of these foods, and we have become convinced that they help us grow big and strong. While they may do this, they also set us up for problems in old age. Starchy vegetables have played a major role in the diets of long lived people. We may need to start giving them, and other less processed foods, a more prominent role again.

 

 

 

 

 

 

 

 

 

 

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

1,749 Responses to Our Energy Problem Is a Quantity Problem

  1. Harry Gibbs says:

    “The Turkish central bank managed to halt the free-fall of the country’s currency last week with a sharp rise in interest rates. But the move failed to stop the free-fall of Turkey’s equity market and – far more dangerous – the collapse of the credit quality of Turkey’s banks…

    “Turkey’s Istanbul 30 stock market index meanwhile has fallen by 35% in US dollar terms since August 29, 2017. Its most vulnerable lender, Halk Bank, lost 63% of its US dollar value in the same period and now trades at 40% of book value.

    “Turkey’s banks are shut out of world capital markets, and the country is hard put to raise the US$50 billion in new hard currency it needs to finance a current account deficit running at around 6% of GDP. Turkish businesses have about US$300 billion in foreign currency debt, and the cost of servicing it has nearly doubled in local-currency terms due to the lira’s depreciation since 2015. The banks will have trouble rolling over their existing short-term borrowings in hard currency, and trouble collecting loan payments from customers crushed by the collapse of the lira….

    “During the past two years, the short-term debt of Halk Bank and Garanti Bank, combined, has risen four-fold, from about 20 billion lira to 80 billion lira…

    “What happens next probably is what happened to Greece during its financial collapse. Its largest financial institution, Alpha Bank, borrowed massively in the short-term market. When the crisis hit, Alpha couldn’t roll over its debt and had to repay its short-term loans. Its stock now trades at around 35% of book value, about the same as Halk Bank.

    “When Greek credit collapsed, the economy shrank by 25%. In Turkey’s case, a 10%-20% overall economic contraction is quite possible. The political consequences of an economic disaster of that magnitude are hard to fathom…”

    http://www.atimes.com/article/turkeys-economic-crisis-has-just-begun/

    “Jordan faces huge economic challenges, with many refugees from Palestine, Iraq and Syria in the country. With few natural resources Jordan has long been dependent on outside benefactors including the United States and the European Union.”

    https://www.al-monitor.com/pulse/originals/2018/06/saudi-arabia-bails-out-jordan-economy-protests.html

    “As real US interest rates and the dollar have risen, investors have been pulling money from emerging markets. There has been about $10bn of outflows from EM debt and shares over the past six weeks, according to analysts at Bank of America Merrill Lynch. Portfolio managers are detecting vulnerabilities in several Asian countries, including India and Indonesia… the amount of Chinese corporate debt sold in dollars has risen sharply and is now above the 2014 peak.”

    https://www.ft.com/content/2b3fe3d6-6d47-11e8-852d-d8b934ff5ffa

  2. Harry Gibbs says:

    “UK wage growth fell short of expectations in April, raising further doubts over whether the Bank of England will raise interest rates this summer.”

    https://www.independent.co.uk/news/business/news/uk-wage-growth-latest-slow-ons-april-unemployment-a8394651.html

    • Harry Gibbs says:

      “Job hiring confidence in the United Kingdom’s crucial financial services sector has sunk into negative territory for the first time since the wake of the 2008 financial crisis, according to a survey compiled by the recruitment firm ManpowerGroup.”

      https://www.cnbc.com/2018/06/12/jobs-outlook-for-uk-financial-services-hits-worst-level-since-2009-poll-shows.html

      • Harry Gibbs says:

        “German investor confidence weakened in June as sluggish economic demand and fears over the new Italian government exacerbated global trade tensions to drive business outlook to its lowest ebb in nearly six years, research group ZEW said on Tuesday.”

        https://www.bloomberg.com/news/articles/2018-06-12/german-investor-confidence-extends-slide-as-political-risks-gain

        • Harry Gibbs says:

          ” any further significant [capital] outflow from Italy could raise Germany’s creditor balance well beyond the highly politically sensitive EUR 1 trillion mark. If that were to occur, there would be little appetite in Germany to engage in the large-scale bailing out of a country that flagrantly flouted the eurozone’s rules of the game… the last thing that Italy can afford is a major pick-up in capital flight that could bring on a full-blown Italian banking crisis.”

          https://seekingalpha.com/article/4181232-italys-silent-bank-run

          • Thanks for these updates.

            The question remains the same though, should we be worried about ~trillions~ at this stage at all? The game of “anything goes” advanced since pre GFCI markedly, now to the era of potential pre GFCII tremors. Perhaps the next act will just up the game with dozens of trillions of global scale support in aggregate, so what? when cunningly executed, i.e. keeping most of the superstructure and debtor-peon relationship intact.

            As we have seen recently, e.g. China is still playing it in calm mode, just receiving yet another incoming hits like agreeing to trade (in)balance measures demanding by the US etc.

            Simply, we are not there yet by a long shot, cornered animals and or fatally wounded animals would behave quite differently.

            • Harry Gibbs says:

              You are welcome!

            • jupiviv says:

              “The question remains the same though, should we be worried about ~trillions~ at this stage at all?”

              As I see it GFC1 was a crisis of faith in return on debt, and it was resolved by denying certain sections of the population the returns they expected.

              GFC2 will likely be the same thing, but this time even more of the unwashed shall crash against the brick wall of denial. Timeline? Definitely on a Monday. Seriously though, likely the next US election farce at the latest.

          • xabier says:

            I wonder how Erdogan will spin this to the dumb peasants who vote for the New Ottoman Empire?

            And will the Germans realise that they can’t forever cruise on the destruction of Southern Europe, giving absurd moral lectures on the way?

  3. Harry Gibbs says:

    “The propaganda is always laid on the heaviest just ahead of The Fall. The [US] employment report showing sub-4%, with nearly 96 million working age people not considered part of the labor Force, is possibly the penultimate fabrication.

    “Consumer spending is more than 70% of the GDP. A toxic consequence of the Fed’s money printing and near-zero interest rate policy over the last 10 years is the artificial inflation of economic activity fueled by indiscriminate credit creation.

    “But now the majority of American households, over 75% of which do not have enough cash in the bank to cover an emergency expense, have become over-bloated from gorging at the Fed’s debt trough.

    “As credit usage slows down or contracts, the economy will go off Bernanke’s Cliff much sooner than Helicopter Ben’s 2020 forecast…

    “The Keynesian economic model – as it is applied in the current era to stimulate consumer spending – requires debt issuance to increase at an increasing rate. But as you can see, the rate of credit usage is decreasing. The affects are already reflected by a rapid slowdown in retail, auto and home sales. Most American households are saturated with debt.

    “The real fun begins as many of these households begin to default. In fact, the delinquency and default rate, in what is supposed to be a healthy economy, on subprime credit card loans and auto debt already exceeds the delinquency/default rate in 2008. Perhaps Bernanke’s Cliff is just around the next bend in the trail…”

    https://seekingalpha.com/article/4180947-consumer-spending-contraction-2-charts-horrify-keynesians

    • jupiviv says:

      @Harry, I haven’t interacted with you much, but I would like to echo WHOTG’s sentiments above. Your daily updates are appreciated.

  4. Baby Doomer says:

    Let start with the unknowns: Saudi proven reserves, Saudi current production capacity and depletion rate at Saudi major producing oilfields including the giant Ghawar. Saudi Arabia claims to have proven reserves of 266.5 billion barrels of oil (bb). However, this figure is disputed by many world experts. I, for one, estimate remaining Saudi oil reserves at 70-80 bb taking into account Saudi oil production since the discovery of oil in Saudi Arabia in 1938 and any possible additions to reserves since then whether physically or as a result of improving technologies. And while Saudi Arabia claims that it can produce at least 12.5 million barrels a day (mbd) if needed, that claim is yet to be tested by market circumstances. Saudi Arabia’s production never exceeded 10.4 mbd before. Still, the Saudis claim they have a spare capacity of some 2 mbd though no one has really assessed it . Saudi oil production peaked many years ago with depletion rates in its major oilfields including Ghawar estimated at 5%-7%. Ghawar accounts for more than 50% of current Saudi production.

    A depletion rate of that magnitude means that Saudi Arabia has to add annually some 500,000-700,000 barrels a day (b/d) to maintain current oil production. This has not been happenings to all intents and purposes. To the question as to whether Saudi Arabia could prevent a future oil crisis, my answer is that it is very doubtful based on the aforementioned analysis. Still, nobody is paying enough attention to the fast-approaching oil supply gap. This is due in large part to an oil investment drought marked by three years of consecutive decline in oil prices, a statistic that has no precedent in the oil industry. By 2020, 15 mbd of new oil supply may be needed to meet a projected annual average rise in global oil demand of 1.59 mbd and also offset an annual natural depletion rate in global oil production estimated by the IEA at 5% or 4.8 mbd, virtually equivalent to losing the current output of Iraq. According to the IEA, the world needs $44 trillion in investment in global energy supply between now and 2040 to meet the coming global energy needs with 60% or $26 trillion allocated for oil and gas production and supply. Even Russia and Saudi Arabia abandoning the OPEC/non-OPEC production cut deal can’t add 15 mbd to global oil supplies by 2020.

    Saudi Arabia has been asked by President Trump to see to it that OPEC increases its oil production by 1 mbd to replace any shortfall in Iran’s oil exports as a result of the forthcoming US sanctions. First, I am convinced that Iran will not lose a single barrel of its oil exports as a result of US forthcoming sanctions for two reasons. One is that the European Union (EU) has already indicated that it will stay in the Iran nuclear deal and will not comply with US sanctions and will, therefore, continue to import Iranian oil. The second reason is that Iran will be using the petro-yuan for its oil exports to China, the euro for its exports to the EU and barter trade with Turkey, Russia and India virtually neutralizing US sanctions. Second, were Saudi Arabia to accede to President Trump’s request, it will be risking unravelling the OPEC deal that has brought an end to the glut in the global oil market and pushed on prices to $80 and also inflicting huge damage again on the Saudi economy which is already bleeding blood and money in the war in Yemen. Russian President Putin is committed to the OPEC deal and his strategic relations with Saudi Arabia. He will, however, withdraw from the deal if Saudi Arabia accedes to President Trump’s request.

    Dr Mamdouh G Salameh International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe
    Business School, London

  5. Sungr says:

    The western financial system generates just mountains and mountains of this financial insanity- charts, graphs, obscure metrics, byzantine derivative schemes, etc. Most of this stuff is heavily manipulated and has no predictive value .

    We have been running on near zero interest rates most of time since 2001- and this has resulted in a massively distorted financial system. which is no longer capable of even it’s most basic function- allocation of resources.

    And we really can no longer accept that the western financial system is even capable of ascertaining market risk ie in terms of cost of money.

    And it’s just a waste of time to constantly examine these financial metrics in microscopic detail.

    • Well, yes and no.
      When examining these proverbial casts of shadows from financial metrics manipulation being debated by some of the players, we might eventually get some scoop about what is in fact the planned response for post GFCII world. I guess it would not be that bad to learn about it obviously in some rough contours..

      • xabier says:

        It is always worth holding one’s finger up to the wind…..

        But, of course, most financial analysis in the media is quite worthless.

    • Fast Eddy says:

      The charade is up … few believe the lies… most are just waiting for the deluge now….

  6. Billy in Texas says:

    I have been reading this site for a long time, and I do appreciate Gail’s articles and all the comments. My one criticism is that no one seems to explain any scientific analysis why solar and wind won’t allow a general increase in available energy. The only question that really matters is whether solar and wind EROEI is above about 4 or not. There are many scientific papers showing solar EROEI at 10 and wind at 20, but I discount those large numbers. Granted, those are intermittent EROEI numbers. There are a lot of people trying to figure the best storage technologies right now and many existing technologies can store 60-70% of the intermittent energy, but for sake of argument, let’s assume storage will reduce the intermittent energy by 50%. That means, that solar EROEI is 5 and wind is 10 on a levelized, non-intermittent, basis. With those EROEI numbers, humans can run our existing society and keep expanding for a long time without hydrocarbons. If you do the math, the USA can provide all its current energy needs using solar alone with just 1-2% of available land area. I understand most people on this site are convinced doom is around the corner, but if you do the math using existing technology, it’s apparent that solar and wind can eventually grow to replace hydrocarbons. It is just a matter of time. By the way, I work in the oil and gas industry and my livelihood depends on hydrocarbons, but I have read the scientific articles and reviewed the math. With enough time and investment, solar and wind can replace hydrocarbon energy and power our society into the future including growth.

    • Fast Eddy says:

      Billy – fortunately for you I am here to help.

      Let me know if you have any further questions

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

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

      Both men are Stanford PhDs, Ross Koningstein having trained in aerospace engineering and David Fork in applied physics. These aren’t guys who fiddle about with websites or data analytics or “technology” of that sort: they are real engineers who understand difficult maths and physics, and top-bracket even among that distinguished company.

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

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

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

      http://www.theregister.co.uk/2014/11/21/renewable_energy_simply_wont_work_google_renewables_engineers/

      Replacement of oil by alternative sources

      While oil has many other important uses (lubrication, plastics, roadways, roofing) this section considers only its use as an energy source. The CMO is a powerful means of understanding the difficulty of replacing oil energy by other sources. SRI International chemist Ripudaman Malhotra, working with Crane and colleague Ed Kinderman, used it to describe the looming energy crisis in sobering terms.[13] Malhotra illustrates the problem of producing one CMO energy that we currently derive from oil each year from five different alternative sources. Installing capacity to produce 1 CMO per year requires long and significant development.

      Allowing fifty years to develop the requisite capacity, 1 CMO of energy per year could be produced by any one of these developments:

      4 Three Gorges Dams,[14] developed each year for 50 years, or
      52 nuclear power plants,[15] developed each year for 50 years, or
      104 coal-fired power plants,[16] developed each year for 50 years, or
      32,850 wind turbines,[17][18] developed each year for 50 years, or
      91,250,000 rooftop solar photovoltaic panels[19] developed each year for 50 years

      The world consumes approximately 3 CMO annually from all sources. The table [10] shows the small contribution from alternative energies in 2006.

      http://en.wikipedia.org/wiki/Cubic_mile_of_oil

    • It’s kind of the “curse of the sandbox” we happen to live in.. Most of the current
      advanced civ has been situated under influence of northerly climate/weather patterns, were wind and solar are useless without expensive(negative productivity) backup for the grid..which must buffer days or rather weeks of capacity.

      There seems to be nowadays only one industrial scale way out, and that’s burning wider array of oxides in nuclear reactors, only Russia has got the program running; and with the combo of their natgas, arctic oil, and coal resources, they might extend BAU, kind of the Byzantine (East Roman Empire) shtick v2.0 way, but it’s doubtful they won’t be affected by everybody else around them going under fast (not only for JITs, ).. especially the crazies..

    • Yorchichan says:

      There are a lot of people trying to figure the best storage technologies right now and many existing technologies can store 60-70% of the intermittent energy, but for sake of argument, let’s assume storage will reduce the intermittent energy by 50%. That means, that solar EROEI is 5 and wind is 10 on a levelized, non-intermittent, basis.

      I’m not sure what you mean when you write that storage will reduce the intermittent energy by 50%. Do you mean 50% of the intermittent energy can be stored? If so, it would not follow from this that EROEI figures for generation plus storage can then be calculated by halving the intermittent EROEI figures. Adding the cost of the storage will do much more than double the initial cost of the windmill or solar panel meaning the effect on EROEI is a lot more than to ‘merely’ halve it. As FE has written above, the cost of storage makes solar and wind power prohibitively expensive.

    • Mike Roberts says:

      You can’t have infinite growth on a finite planet. So the last sentence of yours is wrong, unless you’re referring to some short time interval. As for renewables replacing non-renewables. That hasn’t yet happened at all. Non-renewables are required to construct renewables. I haven’t seen any research that goes into the complete calculation of what it would take for renewables to replace non-renewables, including the resources needed for such a build-out and the environmental impact of doing so (you’ll never get away without environmental impact).

      At some point, this technological civilisation goes away. It’s just a matter of time.

    • One of the EROEI issues is that there is a societal threshold for needed EROEI. Charles Hall has estimated that at 10:1; I think that that is too low. Debt levels started spiraling out of control when oil prices rose above $20 per barrel, in 2018$. At that point, oil EROEI was probably up in the 50:1 ratio. So we are arguing about low, very low, and way way too low EROI.

      Another is that when storage has been evaluated, it has had a huge impact on EROEI of solar. This is one exhibit I put together, based on the work of Graham Palmer. It pretty much wipes out any benefit at all (if it makes any sense at all to look at an EROEI of 1:1. EROEI calculations look at only a little piece of energy that goes into making the devices).

      There is a third issue, and that is that the EROEI methodology is really not suited to wind and solar. They have a lot of cost issues, and indirectly these are energy-related, but they are not considered at all. A lot of these costs are hard to measure. Too many analysts have tried to assume that other electricity-producing companies could be expected to subsidize wind and solar, without compensation. This is a good way to wreck the whole electrical grid system.

      If an energy product were really producing a lot of surplus energy to benefit the economy, we would be seeing a great deal of evidence of this. For one thing, governments would be collecting high taxes from companies making these energy products. We are seeing all kinds of subsidies instead. This by itself should tell us that we have a major problem.

      Another point is that the real issue is obtaining an an adequate quantity of energy; EROEI does not look at this at all. What happens in practice is countries find out how much wind and solar cost to subsidize and how disruptive they are to the grid, and they back away after a few years. China is the latest country to back away from solar. https://www.greentechmedia.com/articles/read/chinas-bombshell-solar-policy-could-cut-capacity-20-gigawatts#gs.8rsuIzM

      The country’s National Energy Administration, the National Development and Reform Commission and the Ministry of Finance released new guidance that terminates any approvals for new subsidized utility-scale PV power stations in 2018.

      China will also reduce its feed-in tariff for projects by RMB 0.05 per kilowatt-hour (a fraction of a U.S. cent), cap distributed project size at 10 gigawatts (down from 19 gigawatts), and mandate that utility-scale projects go through auctions to set power prices. Projects connected to the grid past June 1 will not receive feed-in tariffs.

      In all, the changes will significantly chill growth in a country that’s driving the global solar market.

      • Mike Roberts says:

        A minor point. I agree that 10:1 is probably too low but I seem to recall that was a figure which Richard Heinberg proposed and I think that he quoted Charles Hall as suggesting it might be 5:1, though that may have been for a basic civilisation. For a subsistence lifestyle, my feeling is that it would not need to be much more than 1:1, though I’d bet no-one, or not many, would want to live in a society at less than 10:1.

        • 1:1 can be summed up very simply

          you only eat what you can catch or find—it really is that basic and simple

          you wear no clothes, because clothing appropriates the surplus of another species–whether plant or animal, as does fire btw—burning stuff also uses surplus from elsewhere

        • The 10:1 figure was a figure Charles Hall had come up with looking at animals, and how much of the food energy they were able to gather could be used simply for catching the prey. The rest had to be used for all of the metabolic processes and reproduction. Richard Heinberg is an educator, not a researcher. He reads what Charles Hall and others write.

          The problem in calculating “energy at the wellhead” or energy going into making a solar panel is that is clearly only a small part of all the energy that is needed for the system. The difference between (Energy Out) and (A Small Portion of Energy In) is referred to as (Net Energy), but this leads to a lot of misunderstandings. I don’t think this naming convention should ever have been used.

          • Mike Roberts says:

            Of course Heinberg uses the work of others for his analyses. It doesn’t make the analyses invalid, though. The figures I saw were in his book “Searching for a Miracle”. Diagram 2 mentions Charles Hall’s figure of 5:1, without endorsing it. Elsewhere, he refers to a different source for 10:1 for an industrial society.

            The actual figure is probably something that can’t be maintained for much longer, anyway, so the point is probably moot, but your figure set off a recollection, that’s all.

        • Fast Eddy says:

          Given Heinberg is a clueless idi ot I would dismiss his comments — there is no such thing as a basic level… aka BAU Lite

  7. Baby Doomer says:

    I emailed: Dr Mamdouh G. Salameh
    International Oil Economist / World Bank Consultant

    And asked him when do you think global peak oil will occur?

    And he replied by 2028

    • Fast Eddy says:

      So the economy implodes before oil supply peaks….

      • Baby Doomer says:

        IMO the collapse will happen in one of three ways..

        1..The economy will collapse on it’s own naturally..

        2. Global oil production will peak and oil shortages will collapse the world economy..

        3. Some sort of major conflict or war will collapse the world economy..

        One of these three things will likely happen within the next decade..which one? who knows..If I had to bet I would say number two is most likely..

    • Thanks for that email and previews post where Dr. Salameh talks about nascent petro-yuan, euro, and barter deals.. Interesting acknowledgement from such WB affiliated guy, although it’s doubtful this will make a difference prior late 2020s. Simply Russia, China, Iran (+other potential partners) were not able to phase in meaningful alternative during 2000-2010s.. So, it looks like we might hit directly into GFCII within the current system as it stands, the maneuvering time-space seems very limited.

Comments are closed.