Why stimulus can’t fix our energy problems

Economists tell us that within the economy there is a lot of substitutability, and they are correct. However, there are a couple of not-so-minor details that they overlook:

  • There is no substitute for energy. It is possible to harness energy from another source, or to make a particular object run more efficiently, but the laws of physics prevent us from substituting something else for energy. Energy is required whenever physical changes are made, such as when an object is moved, or a material is heated, or electricity is produced.
  • Supplemental energy leverages human energy. The reason why the human population is as high as it is today is because pre-humans long ago started learning how to leverage their human energy (available from digesting food) with energy from other sources. Energy from burning biomass was first used over one million years ago. Other types of energy, such as harnessing the energy of animals and capturing wind energy with sails of boats, began to be used later. If we cut back on our total energy consumption in any material way, humans will lose their advantage over other species. Population will likely plummet because of epidemics and fighting over scarce resources.

Many people appear to believe that stimulus programs by governments and central banks can substitute for growth in energy consumption. Others are convinced that efficiency gains can substitute for growing energy consumption. My analysis indicates that workarounds, in the aggregate, don’t keep energy prices high enough for energy producers. Oil prices are at risk, but so are coal and natural gas prices. We end up with a different energy problem than most have expected: energy prices that remain too low for producers. Such a problem can have severe consequences.

Let’s look at a few of the issues involved:

[1] Despite all of the progress being made in reducing birth rates around the globe, the world’s population continues to grow, year after year.

Figure 1. 2019 World Population Estimates of the United Nations. Source: https://population.un.org/wpp/Download/Standard/Population/

Advanced economies in particular have been reducing birth rates for many years. But despite these lower birth rates, world population continues to rise because of the offsetting impact of increasing life expectancy. The UN estimates that in 2018, world population grew by 1.1%.

[2] This growing world population leads to a growing use of natural resources of every kind.

There are three reasons we might expect growing use of material resources:

(a) The growing world population in Figure 1 needs food, clothing, homes, schools, roads and other goods and services. All of these needs lead to the use of more resources of many different types.

(b) The world economy needs to work around the problems of an increasingly resource-constrained world. Deeper wells and more desalination are required to handle the water needs of a rising population. More intensive agriculture (with more irrigation, fertilization, and pest control) is needed to harvest more food from essentially the same number of arable acres. Metal ores are increasingly depleted, requiring more soil to be moved to extract the ore needed to maintain the use of metals and other minerals. All of these workarounds to accommodate a higher population relative to base resources are likely to add to the economy’s material resource requirements.

(c) Energy products themselves are also subject to limits. Greater energy use is required to extract, process, and transport energy products, leading to higher costs and lower net available quantities.

Somewhat offsetting these rising resource requirements is the inventiveness of humans and the resulting gradual improvements in technology over time.

What does actual resource use look like? UN data summarized by MaterialFlows.net shows that extraction of world material resources does indeed increase most years.

Figure 2. World total extraction of physical materials used by the world economy, calculated using weight in metric tons. Chart is by MaterialFlows.net. Amounts shown are based on the Global Material Flows Database of the UN International Resource Panel. Non-metallic minerals include many types of materials including sand, gravel and stone, as well as minerals such as salt, gypsum and lithium.

[3] The years during which the quantities of material resources cease to grow correspond almost precisely to recessionary years.

If we examine Figure 2, we see flat periods or periods of actual decline at the following points: 1974-75, 1980-1982, 1991, and 2008-2009. These points match up almost exactly with US recessionary periods since 1970:

Figure 3. Dates of US recessions since 1970, as graphed by the Federal Reserve of St. Louis.

The one recessionary period that is missed by the Figure 2 flat periods is the brief recession that occurred about 2001.

[4] World energy consumption (Figure 4) follows a very similar pattern to world resource extraction (Figure 2).

Figure 4. World Energy Consumption by fuel through 2018, based on 2019 BP Statistical Review of World Energy. Quantities are measured in energy equivalence. “Other Renew” includes a number of kinds of renewables, including wind, solar, geothermal, and sawdust burned to provide electricity. Biofuels such as ethanol are included in “Oil.”

Note that the flat periods are almost identical to the flat periods in the extraction of material resources in Figure 2. This is what we would expect, if it takes material resources to make goods and services, and the laws of physics require that energy consumption be used to enable the physical transformations required for these goods and services.

[5] The world economy seems to need an annual growth in world energy consumption of at least 2% per year, to stay away from recession.

There are really two parts to projecting how much energy consumption is needed:

  1. How much growth in energy consumption is required to keep up with growing population?
  2. How much growth in energy consumption is required to keep up with the other needs of a growing economy?

Regarding the first item, if the population growth rate continues at a rate similar to the recent past (or slightly lower), about 1% growth in energy consumption is needed to match population growth.

To estimate how much growth in energy supply is needed to keep up with the other needs of a growing economy, we can look at per capita historical relationships:

Figure 5. Three-year average growth rates of energy consumption and GDP. Energy consumption growth per capita uses amounts provided in BP 2019 Statistical Review of World Energy. World per capita GDP amounts are from the World Bank, using GDP on a 2010 US$ basis.

The average world per capita energy consumption growth rate in non-recessionary periods varies as follows:

  • All years: 1.5% per year
  • 1970 to present: 1.3% per year
  • 1983 to present: 1.0% per year

Let’s take 1.0% per year as the minimum growth in energy consumption per capita required to keep the economy functioning normally.

If we add this 1% to the 1% per year expected to support continued population growth, the total growth in energy consumption required to keep the economy growing normally is about 2% per year.

Actual reported GDP growth would be expected to be higher than 2%. This occurs because the red line (GDP) is higher than the blue line (energy consumption) on Figure 5. We might estimate the difference to be about 1%. Adding this 1% to the 2% above, total reported world GDP would be expected to be about 3% in a non-recessionary environment.

There are several reasons why reported GDP might be higher than energy consumption growth in Figure 5:

  • A shift to more of a service economy, using less energy in proportion to GDP growth
  • Efficiency gains, based on technological changes
  • Possible intentional overstatement of reported GDP amounts by some countries to help their countries qualify for loans or to otherwise enhance their status
  • Intentional or unintentional understatement of inflation rates by reporting countries

[6] In the years subsequent to 2011, growth in world energy consumption has fallen behind the 2% per year growth rate required to avoid recession.

Figure 7 shows the extent to which energy consumption growth has fallen behind a target growth rate of 2% since 2011.

Figure 6. Indicated amounts to provide 2% annual growth in energy consumption, as well as actual increases in world energy consumption since 2011. Deficit is calculated as Actual minus Required at 2%. Historical amounts from BP 2019 Statistical Review of World Energy.

[7] The growth rates of oil, coal and nuclear have all slowed to below 2% per year since 2011. While the consumption of natural gas, hydroelectric and other renewables is still growing faster than 2% per year, their surplus growth is less than the deficit of oil, coal and nuclear.

Oil, coal, and nuclear are the types of energy whose growth has lagged below 2% since 2011.

Figure 7. Oil, coal, and nuclear growth rates have lagged behind the target 2% growth rate. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

The situations behind these lagging growth rates vary:

  • Oil. The slowdown in world oil consumption began in 2005, when the price of oil spiked to the equivalent of $70 per barrel (in 2018$). The relatively higher cost of oil compared with other fuels since 2005 has encouraged conservation and the switching to other fuels.
  • Coal. China, especially, has experienced lagging coal production since 2012. Production costs have risen because of depleted mines and more distant sources, but coal prices have not risen to match these higher costs. Worldwide, coal has pollution issues, encouraging a switch to other fuels.
  • Nuclear. Growth has been low or negative since the Fukushima accident in 2011.

Figure 8 shows the types of world energy consumption that have been growing more rapidly than 2% per year since 2011.

Figure 8. Natural gas, hydroelectric, and other renewables (including wind and solar) have been growing more rapidly than 2% since 2011. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

While these types of energy produce some surplus relative to an overall 2% growth rate, their total quantity is not high enough to offset the significant deficit generated by oil, coal, and nuclear.

Also, it is not certain how long the high growth rates for natural gas, hydroelectric, and other renewables can persist. The growth in natural gas may slow because transport costs are high, and consumers are not willing/able to pay for the high delivered cost of natural gas, when distant sources are used. Hydroelectric encounters limits because most of the good sites for dams are already taken. Other renewables also encounter limits, partly because many of the best sites are already taken, and partly because batteries are needed for wind and solar, and there is a limit to how fast battery makers can expand production.

Putting the two groupings together, we obtain the same deficit found in Figure 6.

Figure 9. Comparison of extra energy over targeted 2% growth from natural gas, hydroelectric and other renewables with energy growth deficit from oil, coal and nuclear combined. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

Based on the above discussion, it seems likely that energy consumption growth will tend to lag behind 2% per year for the foreseeable future.

[8] The economy needs to produce its own “demand” for energy products, in order to keep prices high enough for producers. When energy consumption growth is below 2% per year, the danger is that energy prices will fall below the level needed by energy producers.

Workers play a double role in the economy:

  • They earn wages, based on their jobs, and
  • They are the purchasers of goods and services.

In fact, low-wage workers (the workers that I sometimes call “non-elite workers”) are especially important, because of their large numbers and their role in buying many items that use significant amounts of energy. If these workers aren’t earning enough, they tend to cut back on their discretionary buying of homes, cars, air conditioners, and even meat. All of these require considerable energy in their production and in their use.

High-wage workers tend to spend their money differently. Most of them have already purchased as many homes and vehicles as they can use. They tend to spend their extra money differently–on services such as private education for their children, or on investments such as shares of stock.

An economy can be configured with “increased complexity” in order to save energy consumption and costs. Such increased complexity can be expected to include larger companies, more specialization and more globalization. Such increased complexity is especially likely if energy prices rise, increasing the benefit of substitution away from the energy products. Increased complexity is also likely if stimulus programs provide inexpensive funds that can be used to buy out other firms and for the purchase of new equipment to replace workers.

The catch is that increased complexity tends to reduce demand for energy products because the new way the economy is configured tends to increase wage disparity. An increasing share of workers are replaced by machines or find themselves needing to compete with workers in low-wage countries, lowering their wages. These lower wages tend to lower the demand of non-elite workers.

If there is no increase in complexity, then the wages of non-elite workers can stay high. The use of growing energy supplies can lead to the use of more and better machines to help non-elite workers, and the benefit of those machines can flow back to non-elite workers in the form of higher wages, reflecting “higher worker productivity.” With the benefit of higher wages, non-elite workers can buy the energy-consuming items that they prefer. Demand stays high for finished goods and services. Indirectly, it also stays high for commodities used in the process of making these finished goods and services. Thus, prices of energy products can be as high as needed, so as to encourage production.

In fact, if we look at average annual inflation-adjusted oil prices, we find that 2011 (the base year in Sections [6] and [7]) had the single highest average price for oil.1 This is what we would expect, if energy consumption growth had been adequate immediately preceding 2011.

Figure 10. Historical inflation-adjusted Brent-equivalent oil prices based on data from 2019 BP Statistical Review of World Energy.

If we think about the situation, it is not surprising that the peak in average annual oil prices took place in 2011, and the decline in oil prices has coincided with the growing net deficit shown in Figures 6 and 9. There was really a double loss of demand, as growth in energy use slowed (reducing direct demand for energy products) and as complexity increased (shifting more of the demand to high-wage earners and away from the non-elite workers).

What is even more surprising is the fact that the prices of fuels in general tend to follow a similar pattern (Figure 11). This strongly suggests that demand is an important part of price setting for energy products of all kinds. People cannot buy more goods and services (made and transported with energy products) than they can afford over the long term.

Figure 11. Comparison of changes in oil prices with changes in other energy prices, based on time series of historical energy prices shown in BP’s 2019 Statistical Review of World Energy. The prices in this chart are not inflation-adjusted.

If a person looks at all of these charts (deficits in Figures 6 and 9 and oil and energy prices in general from Figures 10 and 11) for the period 2011 onward, there is a very distinct pattern. There is at first a slow slide down, then a fast slide down, followed (at the end) by an uptick. This is what we should expect, if low energy growth is leading to low prices for energy products in general.

[9] There are two different ways that oil and other energy prices can damage the economy: (a) by rising too high for consumers or (b) by falling too low for producers to have funds for reinvestment, taxes and other needs. The danger at this point is from (b), energy prices falling too low for producers.

Many people believe that the only energy problem that an economy can have is prices that are too high for consumers. In fact, energy prices seemed to be very high in the lead-ups to the 1974-1975 recession, the 1980-1982 recession, and the 2008-2009 recession. Figure 5 shows that the worldwide growth in energy consumption was very high in the lead-up to all three of these recessions. In the two earlier time periods, the US, Europe, and the Soviet Union were all growing their economies, leading to high demand. Preceding the 2008-2009 Great Recession, China was growing its economy very rapidly at the same time the US was providing low interest rates for home purchases, some of them to subprime borrowers. Thus, demand was very high at that time.

The 1974-75 recession and the 1980-1982 recession were fixed by raising interest rates. The world economy was overheating with all of the increased leveraging of human energy with energy products. Higher short-term interest rates helped bring growth in energy prices (as well as food prices, which are very dependent on energy consumption) down to a more manageable level.

Figure 12. Three-month and ten-year interest rates through May 2019, in chart by Federal Reserve of St. Louis.

There was really a two-way interest rate fix related to the Great Recession of 2008-2009. First, when oil and other energy prices started to spike, the US Federal Reserve raised short term interest rates in the mid 2000s. This, by itself, was almost enough to cause recession. When recession started to set in, short-term interest rates were brought back down. Also, in late 2008, when oil prices were very low, the US began using Quantitative Easing to bring longer-term interest rates down, and the price of oil back up.

Figure 13. Monthly Brent oil prices with dates of US beginning and ending Quantitative Easing.

There is one recession that seems to have been the result of low oil prices, perhaps combined with other factors. That is the recession that was associated with the collapse of the central government of the Soviet Union in 1991.

[10] The recession that comes closest to the situation we seem to be heading into is the one that affected the world economy in 1991 and shortly thereafter.

If we look at Figures 2 and 5, we can see that the recession that occurred in 1991 had a moderately severe effect on the world economy. Looking back at what happened, this situation occurred when the central government of the Soviet Union collapsed after 10 years of low oil prices (1982-1991). With these low prices, the Soviet Union had not been earning enough to reinvest in new oil fields. Also, communism had proven to be a fairly inefficient method of operating the economy. The world’s self-organizing economy produced a situation in which the central government of the Soviet Union collapsed. The effect on resource consumption was very severe for the countries most involved with this collapse.

Figure 14. Total extraction of physical materials Eastern Europe, Caucasus and Central Asia, in chart by MaterialFlows.net. Amounts shown are based on the Global Material Flows Database of the UN International Resource Panel.

World oil prices have been falling too low, at least since 2012. The biggest decreases in prices have come since 2014. With energy prices already very low compared to what producers need, there is a need right now for some type of stimulus. With interest rates as low as they are today, it will be very difficult to lower interest rates much further.

Also, as we have seen, debt-related stimulus is not very effective at raising energy prices unless it actually raises energy consumption. What works much better is energy supply that is cheap and abundant enough that supply can be ramped up at a rate well in excess of 2% per year, to help support the growth of the economy. Suitable energy supply should be inexpensive enough to produce that it can be taxed heavily, in order to help support the rest of the economy.

Unfortunately, we cannot just walk away from economic growth because we have an economy that needs to continue to expand. One part of this need is related to the world’s population, which continues to grow. Another part of this need relates to the large amount of debt that needs to be repaid with interest. We know from recent history (as well as common sense) that when economic growth slows too much, repayment of debt with interest becomes a problem, especially for the most vulnerable borrowers. Economic growth is also needed if businesses are to receive the benefit of economies of scale. Ultimately, an expanding economy can be expected to benefit the price of a company’s stock.

Observations and Conclusions

Perhaps the best way of summing up how my model of the world economy differs from other ones is to compare it to other popular models.

The Peak Oil model says that our energy problem will be an oil supply problem. Some people believe that oil demand will rise endlessly, allowing prices to rise in a pattern following the ever-rising cost of extraction. In the view of Peak Oilers, a particular point of interest is the date when the supply of oil “peaks” and starts to decline. In the view of many, the price of oil will start to skyrocket at that point because of inadequate supply.

To their credit, Peak Oilers did understand that there was an energy bottleneck ahead, but they didn’t understand how it would work. While oil supply is an important issue, and in fact, the first issue that starts affecting the economy, total energy supply is an even more important issue. The turning point that is important is when energy consumption stops growing rapidly enough–that is, greater than the 2% per year needed to support adequate economic growth.

The growth in oil consumption first fell below the 2% level in 2005, which is the year that some observers have claimed that “conventional” (that is, free flowing, low-cost) oil production peaked. If we look at all types of energy consumption combined, growth fell below the critical 2% level in 2012. Both of these issues have made the world economy more vulnerable to recession. We experienced a recession based on prices that were too high for consumers in 2008-2009. It appears that the next bottleneck may be caused by energy prices that are too low for producers.

Recessions that are based on prices that are too low for the producer are the more severe type. For one thing, such recessions cannot be fixed by a simple interest rate fix. For another, the timing is unpredictable because a problem with low prices for the producer can linger for quite a few years before it actually leads to a major collapse. In fact, individual countries affected by low energy prices, such as Venezuela, can collapse before the overall system collapses.

While the Peak Oil model got some things right and some things wrong, the models used by most conventional economists, including those included in the various IPCC reports, are far more deficient. They assume that energy resources that seem to be in the ground can actually be extracted. They see no limitations caused by prices that are too high for consumers or too low for producers. They do not realize that affordable energy prices can actually fall over time, as the economy weakens.

Conventional economists assume that it is possible for politicians to direct the economy along lines that they prefer, even if doing so contradicts the laws of physics. In particular, they assume that the economy can be made to operate with much less energy consumption than is used today. They assume that we collectively can decide to move away from coal consumption, without having another fuel available that can adequately replace coal in quantity and uses.

History shows that the collapse of economies is very common. Collectively, we have closed our eyes to this possibility ever happening to the world economy in the modern era. If the issue with collapsing demand causing ever-lower energy prices is as severe as my analysis indicates, perhaps we should be examining this scenario more closely.

Note:

[1] There was a higher spike in oil prices in 2008, but averaged over the whole year, the 2008 price was lower than the continued high prices of 2011.

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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880 Responses to Why stimulus can’t fix our energy problems

  1. Harry McGibbs says:

    “Houston oilfield service company Halliburton said it cut 8 percent of its North American workforce as it took fleets of hydraulic fracturing equipment from the field in response to a continued slump in demand for fracking services in the United States and Canada.”

    https://www.chron.com/business/energy/article/Halliburton-cuts-8-percent-of-North-American-14114085.php

  2. Harry McGibbs says:

    “The Asian debt crisis of 1997 devastated the region for many years, and was felt in markets throughout the world. The last tremors of the 2008 global banking crisis are still resonating. Now, financial media and other observers question whether rising debt levels in Asia can trigger a new crisis. Unfortunately, the signs are ominous, and the health of the real and financial sectors is deteriorating.”

    https://www.businesstimes.com.sg/opinion/signs-of-stress-in-the-asian-financial-system

    • Harry McGibbs says:

      “…the ECB is starting to push for more justification to continue with quantitative easing and, perhaps, even direct buying of equities that the Bank of Japan and the Swiss National Bank have been engaging in for years now. Even the U.S. Federal Reserve is conducting a review of its strategy vis-à-vis price inflation and its mandate. Those results are expected early next year.

      “This is a sign that central banks are starting to panic over the fact that, no matter what they do, price inflation remains stubbornly low and falling.”

      https://www.deflation.com/en/Articles/Central-Banks-Starting-to-Panic-over-Deflation

      • Harry McGibbs says:

        “Massachusetts Sen. Elizabeth Warren said there are warning signs for another financial crisis that would devastate the United States…

        “”I warned about an economic crash years before the 2008 crisis, but the people in power wouldn’t listen,” Warren wrote in a Medium post. “Now I’m seeing serious warning signs in the economy again — and I’m calling on regulators and Congress to act before another crisis costs America’s families their homes, jobs, and savings.””

        https://edition.cnn.com/2019/07/22/politics/elizabeth-warren-financial-crisis-wall-street-economic-plan/index.html

        • if there’s a serious economic crash—I mean really drastic, something leading to widespread civil unrest and disorder, the don will assume emergency powers and declare martial law with himself as dictator. I think the next one really will be that bad.

          he will have no choice, and the military will fall in behind whoever pays their wages

          ————

          ///In case anybody missed my ramblings on here, I was wooed across the American border by the old fashioned charm and courtesy of the US border guards last week—85 minutes to cross into America, with passport etc in perfect order—30 seconds to escape back into Canada 2 days later.
          I was there so long I thought the Don was coming to welcome me in person after all the nice things Ive said about him
          I think the Canada border man didnt like my tears and kisses very much–but I think he was used to it/////

          • Tim Groves says:

            Going to the US is one small step for a Brit, one great leap for Brit-kind, Norm. Although last century, you could go both ways across that border in 30 seconds flat and be waved through with a smile and a “have a nice trip!”

            I crossed between Michigan and Ontario a couple of times and it was almost like there wasn’t a border at all, just a flimsy barrier like the ones you have to raise when coming out of a pay-by-the-hour parking lot.

            • that was in pre 9/11 days

              now the obstructionism is very obvious. This was my fourth crossing, and each time seems to take longer than the last, even though there’s no actual reason for the hold up—I’m not counting traffic queues here.

              At least they’ve now stopped asking me if I intend to engage in any sexual misconduct while I’m in the USA, or if I have ever been a member of the Na zi party (and yes, they used to be on the questionnaire)

              I always wanted to say “chance would be a fine thing” to the first question, but I don’t think a sense of humour is a prerequisite for an American border guard. And being a member of the Na zi party would guarantee fast access these days I think

      • Xabier says:

        Or, again, we might say: ‘Central banks must face up to the fact that they have failed to restore prosperity to the mass of people in consumer economies,and that although this, or course, doesn’t matter to them one bit -intent as they are on lining the pockets of the investor and owner class – it has dire consequences. The mass of people are increasingly unable to purchase, even on improbable credit, the goods and services which are the basis of economic growth in the model established over the last two centuries, and above all in the Age of Oil. Game over. ‘

      • Low inflation comes with low demand. Low demand is hard to fix.

    • Xabier says:

      Or we might say: ‘In fact, nothing has been truly healthy for the last decade, and now the facade of pretence is failing, the screens will be moved aside, and we are going to see the decayed and putrifying reality laid bare.’

    • It seems like the problems we have are cyclical. The issue, however, is that eventually they become too bad to fix with the interest rate and debt tools available to policymakers.

    • neil says:

      Maybe someone can look at state-to-state number to figure out if this is temporary or the beginning of a sustained trend? https://www.eia.gov/petroleum/production/#oil-tab

    • The downturn occurred during the week that oil production was closed down for a tropical storm in the Gulf of Mexico. If you look at historical data, there seem to be a lot of these temporary dips. I think that the decline in rig count is more telling, for now. I expect that we need to wait a bit, to look at the trend in actual production amounts.

    • You may really be right about US oil production peaking.

      See this Seeking Alpha article. https://seekingalpha.com/article/4276550-u-s-shale-peak-oil-finally-arrives

      I think the issue is really low prices. Chronic low prices for energy seem to be what bring about peaking fuel supply.

      • Yoshua says:

        The higher U.S shale oil production reaches, the larger the decline is as well. The Wolfcamp basin for an example has a 600.000 barrels decline to be replaced this year according to this estimate:

        The cost to replace shale oils decline rate at this level of production is probably to high at current WTI price?

        • Hm, what about the WTI price when Hormuz throughput is (semi-)closed for a while (say at least few yrs).. Obviously, and meanwhile the overall mega trend of evaporating purchasing power per capita is likely to continue, so consumers would have to triage their shopping/spending preferences to compensate for this rising energy prices, plus the gov-CBs would have to buy-stand behind more debts to prop up the stretched system as the rising energy prices soak into everything..

          Simply, I’m very skeptical this is the endgame now – also as discussed/linked here and at Surplus there are several alt plays of oil and natgas in the US, which are just waiting to be developed – focused on at the right time/circumstances, which could be frankly anything from ‘genuine’ market upsurge after next recession/GFC round or anything like command style-war effort economy mandate etc..

          There are too much powerful players (same factions) behind the levers and they are not yet about to abandon their empire status for nothing – it’s not desperate situation for now by any stretch. Lets wait and see in a decade or so.

          • Yoshua says:

            Well…it actually looks as if the shale producers are able to replace the decline rates with new production and even increase production at these prices:

            • Yep, I was hinting at the previous discussion which dealt exactly with the multitude of different ‘alt plays’ there as depicted in your post. These are of different making, need different extraction methods and capital deployed, but the bottom line remains, the drive to get them out by whatever means-debt schemes remains (very strong).

            • The fact that Haliburton is laying off workers because companies are cutting back on drilling is a bad sign. There are still a lot of “Drilled but Uncompleted (DUCs) Wells” that companies can finish off and get oil from, at a lower cost. As I understand the situation, companies have been reducing their backlog of DUCs, to keep production up while cutting expenses. This works for a little while, but then the inventory is gone, and it is necessary to drill new wells at higher cost.

  3. It's different this time around....NO says:

    New RULES
    TAX CUTS for the Super Rich and Food CUTS for the Super Poor…
    Making America Great Again…that should motivate them!
    Trump Administration Moves to End Food Stamps for 3 Million People
    Mike Dorning
    BloombergJuly 23, 2019, 12:00 AM EDT
    (Bloomberg) — The Trump administration is moving to end food stamp benefits for 3 million people with proposed new regulations curtailing the leeway of states to automatically enroll residents who receive welfare benefits.
    Agriculture Secretary Sonny Perdue said state governments “have misused this flexibility.”
    “We are changing the rules, preventing abuse of a critical safety net system, so those who need food assistance the most are the only ones who receive it,” he added.
    Conservatives have long sought cuts in the federal food assistance program for the poor and disabled. House Republicans tried to impose similar restrictions on the food stamp program last year when Congress renewed it but were rebuffed in the Senate.
    Meanwhile….
    Warren Buffett’s Berkshire Hathaway Just Got a $300 Million Raise
    Matthew Frankel, CFP 6/29/2019
    https://www.msn.com/en-us/money/topstocks/warren-buffetts-berkshire-hathaway-just-got-a-300-million-raise/ar-AADC7Gx

    What’s a few Hundred Million $$$ among friends…???

    • I expect that the recipients of these funds will mostly be wealthy people. They won’t do much to bid up the price of commodities. They will spend a lot on more paper shares, and perhaps some higher education for their children.

  4. jupiviv says:

    Since Fast Eddy has begun posting again, he might find this paper enjoyable:

    http://carbon-sense.com/wp-content/uploads/2018/08/1-6-_kompendium-der-energiewende_englisch_1.pdf

    “The idea of meeting our country’s energy needs with wind power and solar energy has proven to be an illusion. At present, around 29,000 wind turbines and 1.6 million photovoltaic systems together account for just 3.1 % of our energy requirements. There were hardly any successes in the heating/cooling and transport sectors.

    Well over a hundred billion euros have been spent on the expansion of solar and wind energy over the same period. The financial obligations undertaken in the process will continue to burden taxpayers for another two decades and will end up costing German consumers a total sum of around 550 billion euros.
    [..]
    For approximately half of September 2017, the power delivered by the wind fleet was less than 10 % of the nominal capacity. Values above 50 % were reached only 5.3 % of the time, in essence only on 8 and 13–15 September.

    Electricity consumption in September 2017 was 39,000 GWh. Wind turbines delivered for 6400 GWh of this and PV systems another 3100 GWh. The minimum power input by all of the PV and wind energy systems was below 0.6 GW, representing less than 1% of the installed capacity of 96 GW.”

    And the cherry on top:

    “The cardinal problems – weather-dependence and low energy density – are unsolved or unsolvable.”

  5. jupiviv says:

    @Gail, thanks for the article. Of late a mixture of worldly affairs and boredom has prevented me from following and participating in collapse issues but I still pop in every now and then.

    • The situation is a little like watching a boat sink slowly. We can see a problem. Everyone else is off looking in a different direction, based on some model they believe. Until water starts sloshing over the deck, it is difficult to see how serious the problem is.

  6. jupiviv says:

    A recent article from Alice Friedemann’s blog:
    High-Tech can’t last: there are limited essential elements
    http://energyskeptic.com/2019/high-tech-cannot-last-rare-earth-metals/

    “While just 12 minerals were used to fabricate microchips initially, now over 60 different kinds of minerals are required (NMA 2017):

    The U.S. is 100% dependent on imports for 19 different minerals and over 50% for another 43 minerals. These trends are unsustainable in a highly competitive world economy in which the demand for minerals continues to grow and supply stability is a growing concern.
    Many of these minerals are both rare and past peak production
    Many of them come from only one country (single-source failure)
    China is the sole source for many of these minerals, and other countries such as failed nations like the Democratic Republic of Congo are not a reliable source.”

    • Alice Friedemann also has a recent article up about wind energy.

      Germany’s renewable energy program, Energiewende, is a big, expensive failure

      According to the article:

      The direct cost drivers of electricity prices are the feed-in tariffs set out in the legislation: operators of wind farms, PV and biomass plants will receive a guaranteed price per kilowatt hour, fixed for 20 years after commissioning. This is set at a level that is many times higher than the market price. The difference is passed on to (almost) all consumers via the electricity price. In addition, producers are guaranteed to be able to sell electricity into the grid at that price, regardless of whether there is a need for it or not.

      In the period 2000–2016, 176 billion euros were paid by electricity consumers to renewables companies, for electricity with a market value of just 5 billion euros.

      She later says:

      Tax consultant Daldorf, analyzed over 1600 annual financial statements of wind energy projects between 2005 and 2013. They found that the vast majority of wind farms in Germany operate at a loss. With many local wind farms, investors are lucky to get their original investment back at all. Daldorf gives the following reasons for the poor performance of windfarms:

      poor wind assessments or no one-year wind measurements on site
      erroneous wind indexes as a basis for planning
      overly low margins of error in wind forecasts
      underestimates of plant downtime for maintenance and repairs
      ’planning optimism’ of the project promoters as a strategy for maximizing profits

      The operators and investors bear the full risk. Before they can make a profit, the following costs must be covered from the sales achieved:

      lease costs
      insurance premiums, fees
      maintenance costs
      repairs, reserves for dismantling costs
      management costs
      administrative and other costs
      interest-costs
      taxes

      This der Spiegel article says something similar

      https://www.spiegel.de/international/business/wind-power-investments-in-germany-proving-riskier-than-thought-a-946367.html

      Some of what she says seems to be directly from this article

      https://stopthesethings.com/2018/08/15/germanys-renewable-energy-disaster-part-3-wind-solar-deemed-economic-nonsense/

  7. Dennis L. says:

    Complexity and end use energy source for us humans. Note, they add trace minerals, modern ag. is very complex if it fails there are serious consequences. Five hundred tons of energy(read feed) per day used at this farm.

    If this system collapses, someone needs to save our bacon, lame joke.

    • What is even more depressing is that the offered antidote in the way of various permaculture – rejuvenation agriculture practices in the end work on very low output / surplus ratios. Although there are many confirmed advantages, e.g. re-building inches of top soil in a decade and getting more diverse potentially healthier food production, the bottom line simply remains that the combo of permaculture practices + somewhat higher output is impossible without added large outside loop mainly in the large inputs of grains into such system, which in effect feed the topsoil and animals (in the role both of food and as working agents on the ground).

      In a way it is similar to claims (&rosy hopes) of renewable energies – technologies.
      As it’s not and it could not be a closed cycle at least for the desired capacity and scale demanded to replace the legacy system..

      • Dennis L says:

        I agree, the trace minerals most likely are transported long distances and subject to disruption, the technology monitoring this system is complex, the operator’s station has four monitors. Those of us who own land are very sensitive to its use and abuse, modern farmers need to be pretty smart cookies to survive, margins are low, capital costs high.

        It is a long way from farm to supermarket shelf and even with mechanization, farm work can be exhausting and as the farmers age, so does their endurance. There aren’t many people with the skills and experience to run an operation as pictured and without them significant food inflation would probably occur.

        Dennis L.

      • I am afraid you are right. I was surprised when I started reading permaculture literature, and found that grains were pretty much left out completely. Somehow, people were supposed to get grains elsewhere, and add them to the mix. Grains are much easier to store over winter, for one thing. They also are good from a calorie point of view.

        • beidawei says:

          I get a lot of raised eyebrows whenever I refer to Permaculture as an “Australian gardening cult.”

        • Yes, the human consumption of grains is one aspect, but what I tried to emphasize is the often overlooked (HIDDEN) bottom line that all the running successful established ‘permaculture farm’ enterprises are selling their: veggies, eggs, poultry, pork and cattle meat, veggies, .. using enormous OFFSITE inputs of grains to have the system working in the first place.

          The idea (PR) is that the improved topsoil and higher quality of produce of the farm somehow offsets the other place (grains producer) – but that’s not realistic and sincere as grains oriented farms are depleting top soils (moisture, ..) much faster.

          So in a way, even the best practice examples of ‘permaculture farm’ which are trying to match industrial agro production in volume are in the end only shifting prosperity of nature from one man made plot of cultivated land to another.

          Don’t get me wrong, eventually it’s the only known way forward, but on the condition of X-times less people to feed and X-times less overall output produced to make it somewhat mid term sustainable (or at least slowing destruction of nature) when applied as repairing technique for soil – ecosystem depleted areas.

          • Xabier says:

            Priority must be given to the soil and natural systems, and not to human lives, insignificant and redundant as most of us really are. The 83 million humans added every year, of what worth are they? I include myself in that.

            Large and flourishing human populations are a rather senseless aim.

            Whatever we do in terms of farming, though, can be bowled over in a trice by a profound change in weather patterns, whether peramanent or just over a few years

            My own feeling is that the window in which humans were able to live in dense populations based on intense agriculture is now closing, for good.

            • Everything about overpopulation seems weird though.
              Sometimes I get the impression families with starving ~9kids are in certain sense happier than single kid abundance often found in the core countries. There must be some natural forcing in this – and I guess it’s related to the ‘role’ of humans to terraform this place after the last ice age..

            • I really don’t see that having kids one after the other while they go hungry is happy in any sense of the word.

              That is basic survivalism—much like the nest full of baby birds were the one who happens to be slightly stronger edges out the slightly weaker, gets fed more and by doing so thrives while the weaker ones die.

              In primitive societies, boys got fed more than girls because boys could go out and get more food. Girls were surplus. That still goes on the certain societies even now

          • You are right, of course. The enormous offsite inputs of grains have kept the permaculture system working in the first place.

            I think that there are a lot of other offsite inputs that keeping the system going as well:

            1. The government that keeps order, provides schools, roads and other services. There needs to be enough profit from the system to pay annual taxes on land. There needs to be enough “profit” within the system to spare the time of people (away from growing and preserving food) to work on all of these endeavors, even to include writing and publishing books to keep knowledge transmitted in written form.

            2. The industrial system that allows many things that we take for granted such as antibiotics and metals for shovels and barbed wire fences. Even nails and axes, in the quantity we would need today, would be impossible, without cutting down too many trees. Books would be impossible in quantity, without the industrial system. Needless to say, the internet would also be impossible.

            • Xabier says:

              The preservation of literacy in the West was made possible by the large herds of sheep and cattle kept by the Church, in order to provide the materials on which to write, until the paper mills came along. (The first paper mills ran on waste linen from old clothing, which produced superb paper).

              So they had to provide a sufficient surplus of skins over and above those needed for shoes, clothing, belts and harnesses, etc.

            • Good point! It would be hard to do today, with 7.7 billion people worldwide.

      • DJ says:

        Biointensive aims to not use direct inputs. Of course there is still indirect- shovels and buckets .

    • Hubbs says:

      Thanks for posting this video. These are very sharp fellows, the kind needed to revive this country. But as you say, the technology trap could be very treacherous. I was born in St. Paul. Almost makes me want to return, but doubt I could survive the winters at age 64.

    • The complexity supporting the farm is incredible! Not something that a permaculture practitioner could match, no matter how hard he or she tried.

      A major way the economy grows is by shrinking share of people’s wages that they have to pay for food (or the share of their time that they have to spend growing their own food). Then, they can afford to pay an increasing share of their wages for other purchases, such as housing, clothing, transportation, government, the luxury of eating at restaurants. An economy that spends a large share of its time growing food can’t do much else.

  8. Harry McGibbs says:

    “Three of Europe’s largest economies are under threat of recession, which could spell a crisis across Europe.

    “Dozens of companies in Germany have turned to “short-time” work — cutting employee hours — a canary in the coal mine of industrial weakness

    “Britain could also already be in a recession despite having not left the EU due to the uncertainty caused by Brexit.”

    https://markets.businessinsider.com/news/stocks/uk-german-and-italian-economies-all-tanking-at-same-time-2019-7-1028376665

    • Harry McGibbs says:

      “A double whammy of Brexit uncertainty and a slowdown in global trade has seen order books in Britain’s factories shrink at their fastest pace since the financial crisis, the CBI has said. Urging the next prime minister, confirmed on Tuesday as Boris Johnson, to strike a deal with the EU, the employers’ organisation said industrial output also fell in the latest quarter, for the first time since the spring of 2016.”

      https://www.theguardian.com/business/2019/jul/23/uk-factories-facing-biggest-slowdown-since-financial-crisis-says-cbi

      • Harry McGibbs says:

        “Industry in Europe’s largest economy took another battering in July, with a measure of manufacturing dropping to its lowest in seven years. Germany’s factory Purchasing Managers’ Index dropped to 43.1 from 45, below even the most pessimistic forecast in a Bloomberg survey.”

        https://www.bloomberg.com/news/articles/2019-07-24/germany-s-factories-go-from-bad-to-worse-as-economy-treads-water

        • Harry McGibbs says:

          “Deutsche Bank has suffered its biggest quarterly loss since the depths of the financial crisis…”

          https://www.ft.com/content/9473bb2c-add6-11e9-8030-530adfa879c2

          • Harry McGibbs says:

            “Italy’s depositor protection fund on Tuesday kicked off a 900 million euro (£807.9 million) rescue process for troubled bank Carige… Genoa-based Carige, weakened by decades of mismanagement, risks collapse as a result of bad loans accumulated during Italy’s recession that followed the global financial crisis a decade ago.”

            https://uk.reuters.com/article/uk-eurozone-banks-carige/italy-banks-to-rescue-carige-via-depositor-protection-fund-idUKKCN1UI1BA

          • The Financial Times article has now been updated to show that its loss was Deutsche Bank’s worst loss since 2015, rather than since the depths of the financial crisis.

            Even with this change, the article indicates terrible results, even worse than analysts were expecting. The bank’s shares are reported to be at €6.77, trading close to the lowest in the bank’s 149-year history. It sounds as if a lot of the bank’s services have problems, even ones that the bank is not discontinuing. Revenue from fixed income trading declined 11%. Merger advisory and capital markets fee revenue fell almost a third.

        • I looked at the article to see how the German economy might still be considered to be expanding, if the manufacturing PMI dropped to 43.1. It turns out that the services PMI is still 55.0, so that the combination of manufacturing and services is still above 50. Government services are not included in this combined PMI. Government services are most likely expanding as well. So, as long as the economy can live in a “services and government only” mode, it can continue to expand.

          But it seems like at some point there would be spill over from the manufacturing sector to other sectors. Eventually, there will be layoffs. These layoffs will affect the purchase of services as well as tax revenue. All of this seems to move fairly slowly. Falls in employment don’t come until companies can see how poorly they are really doing.

          • Xabier says:

            In fact in Spain, for instance, bigger companies cannot sack staff just as they please and have to go to court to get permission – you have to show real losses, not merely foresee them due to worsening trade conditions, in order to get that. This amplifies the lag, and I suppose one could see it as stabilising.

            • A law requiring companies not to fire staff as they please tends to make an economy less competitive in the world economy.

              In the US, there is some difference in state laws regarding employment. I know that state of Georgia is an “at will” state for employment. It has been described as “any hiring is presumed to be ‘at will’; that is, the employer is free to discharge individuals ‘for good cause, or bad cause, or no cause at all,’ and the employee is equally free to quit, strike, or otherwise cease work.” There are better technical descriptions.

              At-will employment has been a headache for my sons, as their programming jobs have been disappearing to China and India. It makes it difficult for workers to count on a particular job lasting. An employer can call you in one morning and tell you, “Gather up your things. We have decided we don’t need your services any more. Thanks for your fine services to date. We will give you a check for a (few weeks pay), as you leave.”

    • that’s why I wrote this piece last year—the EU can keep going only so long as the ‘prosperity pump’ is kept primed

      the EU is a collection of disparate people who were at war for millennia. the EU has only been in existence for 60 years or so. It has no basis in political reality, only economic opportunism

      View at Medium.com

      • Harry McGibbs says:

        Aye – ’tis a very fine article. The clan McGibbs approves.

      • I agree. The more cheap to produce energy is available, the more that can be spared for umbrella organizations like the EU.

        • Xabier says:

          The hierarchy of power is also the hierarchy of energy surplus:

          Clan, tribe, kingdom, empire, supra-national and global entities.

          And then it all unwinds again, until you are knocking your naked neighbour over the head with the jawbone of an ass……

  9. Harry McGibbs says:

    “If late reporters are excluded, [oil] consumption in the top 15, accounting for 45% of world consumption, fell 2.2% in the three months to May compared with 2018, the fastest decline since the recession of 2008/09.

    “Since 2006, consumption growth in the top 15 has been a reliable leading indicator for the top 18 and demand more generally, which is not surprising given the interconnectedness of the global economy.

    “Decelerating oil consumption growth since the second and third quarter of 2018 has corresponded closely with the slowdown in global manufacturing activity and freight movements.”

    https://uk.reuters.com/article/uk-global-oil-kemp/column-global-oil-consumption-stagnates-leaving-prices-under-pressure-idUKKCN1UJ0JY

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