Debunking ‘Lower Oil Supply Will Raise Prices’

We often hear the statement, “When oil supply is lower, oil prices will rise because of scarcity.” Now, we are getting to see firsthand whether oil prices really do rise, as oil supplies become more scarce.

Figure 1. Figure from the OPEC Monthly Oil Market Report for August 2019 showing world and OPEC oil production by month.

Figure 1 shows that world oil supply hit a peak in November 2018 and has declined since then, mostly because of a decline in OPEC’s production. So, total oil production seems to be down for about eight months, relative to the peak in November 2018.

Despite this big cutback by OPEC in its oil production, prices have not responded as OPEC had hoped:

Figure 2. Average monthly spot Brent Oil prices, based on EIA data.

In fact, as I write this, Brent oil price is currently quoted as $60.48, which is back in the range of December 2018 and January 2019 low prices. Also, reducing production doesn’t seem to be reducing inventories. Figure 3 suggests that they are now higher than they were before the reduction in oil supply took place.

Figure 3. Figure from the OPEC Monthly Oil Market Report for August 2019 showing OECD commercial oil stocks.

Why aren’t oil prices rising and oil inventories falling, if oil production has fallen?

The basic issue is that the economy is very much interconnected under the laws of physics, because energy is required for every activity that is considered part of GDP. Energy is required for any kind of heat or any kind of movement. Energy is even required for electricity. Without energy from the sun, food can’t grow; without supplemental energy of some kind (such as using electricity to heat an electric stove or burning animal dung or sticks), it becomes impossible to cook food or smelt metals.

One strange phenomenon that arises from the interconnected nature of the economy is the fact that the prices of all energy products (including those not listed on Figure 4) tend to move together.

Figure 4. 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.

This strange phenomenon arises because energy products are well-buried within every part of the world economy. A person’s job requires energy consumption. The tasks that governments do, such as building roads and schools, require energy consumption. Both transporting and cooking food require the use of energy products. Refrigerating food requires energy products. These energy uses, as well as many other everyday hidden uses of energy, aren’t things that we can easily cut back on.

Consumers often think, “I will drive less, and that will cut back on my energy consumption.” Unfortunately, in the whole scheme of things, whether or not individuals cut back on their optional use of gasoline doesn’t get the world economy very far. Gasoline accounts for about 26% of world oil consumption, or about 8.7% of total energy consumption, based on the most recent BP energy data. Cutting back on the optional use of gasoline would not reduce total consumption very much. If it were possible to reduce gasoline consumption by 10% by voluntary cutbacks, it would still reduce world energy consumption by less than 1%.

The strange pattern of the price changes shown on Figure 4 indicates that there is something affecting energy prices of many kinds, simultaneously. I would describe this as “affordability.” It has to do with how affordable finished goods and services are to the population in general, much more than it does scarcity. (Economists call this affordability issue “demand.”) If finished goods and services are affordable to a large number of consumers, as they were in 2008 and in 2012 and 2013, prices will be bid up to very high levels (Figure 4). If finished goods and services aren’t very affordable, a drop-off in prices, such as that experienced in November and December of 2018 (Figure 2), is likely to occur.

When OPEC decided to cut back its production of oil in response to the low prices in late 2018, this cutback in oil production didn’t help the affordability of finished goods and services. In fact, this cutback probably made the worldwide total quantity of affordable finished goods and services a little lower. This happened because, with the cutback in oil production, the governments of OPEC countries were able to collect less tax revenue on the smaller quantity of oil that the countries were selling. In fact, this smaller quantity of oil wasn’t even being sold at a higher price.

With lower revenue, governments of OPEC countries are being forced to cut back on funding of new projects such as roads and schools. These projects will use fewer energy products, and the would-be workers will have less money to spend on goods made with energy products. Thus, these cutbacks help to lower the world’s “demand” for oil and other energy products and thus help lower the price of oil.

The fact that the economy is interconnected in this strange way makes shifting prices upward much more difficult than if scarcity were the primary issue. In effect, the whole stack of energy prices in Figure 4 must somehow be made to rise. This is difficult to do because it is the lack of wages of the many poor people around the world that is holding back “demand” for energy products. If, somehow, higher wages could be sprinkled on the many poor workers of the world, including those in India and Africa, then oil (and other energy) prices would tend to rise. With higher wages, these poor people would be able to afford items such as nice homes, cars, and air conditioning, pulling world food and energy demand upward.

One difficulty with rising oil (and other energy) prices: They don’t translate into rising wages.

Rising oil prices tend to cause recessions and layoffs. We can see this from historical data. Average wages, considering layoffs, tend to fall rather than rise during times of spiking oil prices. In fact, the chart seems to suggest that the big increases in average wages tend to occur when oil prices are under $40 per barrel. A growing supply of cheap energy thus seems to be the magic ingredient that shifts wages upward.

Figure 5. Average wages in 2017 US$ compared to Brent oil price, also in 2017 US$. Oil prices are from BP’s 2018 Statistical Review of World Energy. Average wages are total wages based on BEA data adjusted by the GDP price deflator, divided by total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

Because of this difficulty with spiking energy prices, high energy prices tend not to last for very long. One issue is that regulators quickly raise short-term interest rates to solve what they perceive as “the problem of rising food and energy prices.” Once recession sets in (gray bars in Figure 6), regulators find that they need to lower interest rates and raise the level of debt to stimulate the economy again. With lower interest rates and more debt, major purchases (such as homes, cars, and factories) become more affordable, because purchases bought on credit have lower monthly payments. With greater affordability, food and energy prices again rise, to again encourage more production.

Figure 6. Three-month and ten-year interest rates through July 2019, in chart by Federal Reserve of St. Louis.

So we end up with an endless see-saw of energy and food prices. In fact, the peaks have tended to fall lower and lower since 2008, as can be seen in Figure 7, showing monthly average prices.

Figure 7. Monthly average Brent Oil prices since January 2000, based on data of the US Energy Information Administration.

Monthly average peaks started at $132.72 in July 2008. More recently, peaks have fallen as follows:

  • Peak of $125.25 for the month of March 2012
  • Peak of $109.54 for May 2014.
  • Low month average price of $30.70 in January 2016.
  • Most recent average peak was $81.03, for the month of October 2018.

From this pattern of falling peaks, we can see that the stimulus being used recently (which includes Quantitative Easing in some parts of the world) has become less and less effective at stimulating demand for food and energy products.

It looks as though growing debt at ever-lower interest rates is becoming a less effective workaround for the economy’s real need, which is a need for a rapidly growing supply of under $40 per barrel oil and other low-priced energy products.

Oil prices can be a problem in two different directions: (a) Too high for consumers or (b) Too low for producers.

From the Point of View of the Consumer. Many people have had the “Ah Ha” moment, in which they have figured out that high oil prices are a problem from the point of view of consumers. In part, they have deduced that these high oil prices may mean that we are “running out” of cheap-to-extract oil. Processes are becoming more complex, and as a result, consumers need to pay more to cover the higher cost of extracting and refining the oil.

But there is a related issue: Higher oil prices are likely to cause recession. If oil prices rise, the prices of many different types of goods and services (such as food, goods transported by truck or airplane, and vacation travel) rise at the same time. Wages don’t rise as quickly, in part because it is the true energy content (measured in Btus, barrels of oil equivalent, or something similar) that the economy requires. If the economy needs to dedicate a larger share of its resources to producing energy products, this is an issue that is akin to growing inefficiency. There are fewer resources remaining (such as human labor, metals, fresh water, and energy products) for investment that might provide goods such as new homes, cars, clothes and air conditioning.

With fewer resources to use, the economy reacts by shrinking back. I think of the situation as being akin to the way a chemist might “make a smaller batch,” if the quantity of one necessary reagent is low. An adequate supply of energy products is what makes the economy operate as it does; if buying an adequate amount of energy products becomes too expensive for consumers, a cutback in the buying of discretionary goods is forced on the economy (Figure 8). Lowering interest rates tends to make the debt repayment portion on new purchases lower, helping to alleviate the squeeze.

Figure 8. Chart made by author in 2010, to illustrate a talk called Peak Oil: Looking for the Wrong Symptoms.

From the Point of View of the Oil Producer. There are oil producers of many kinds, including:

  • Tight oil producers from shale operations,
  • Heavy oil producers in places such as Canada and Venezuela,
  • Producers of oil from deep water such as Brazil and Angola, and
  • Middle Eastern oil exporting countries that seem to have a very low direct cost of oil production.

Strange as it may seem, Middle Eastern oil exporting countries are among the most vulnerable to problems associated with continued oil low prices. The reason why these countries are so vulnerable is because their entire economies are oriented toward oil and gas production. They often have large populations with inadequate income unless the government provides them with handouts or with programs that provide jobs. If these governments need to cut back too much, there is a real danger that the governments will be overthrown. In fact, the population may break down into warring factions. Oil production may stop because of internal disorder.

It is because of issues such as these that the OPEC countries have cut back on oil production, in the hope that prices would rise to more acceptable levels for their countries. Fiscal Breakeven prices, relating to the level of oil prices that are needed so that each government can collect sufficient taxes for its budget, are published from time to time.

Figure 9. Chart published by the Arab Petroleum Investments Corporation (APICORP) giving Fiscal Breakeven Prices estimated to be needed for 2013.

Now that oil prices have been low since late 2014, Middle Eastern countries won’t admit to the true level of oil prices that are needed to operate their countries in the way that they have in the past. Their populations have been rising faster than their oil production, so it is hard to believe that the oil prices that the countries truly need, if they do not cut back on programs, are any lower than the amounts shown in Figure 9. At about $60 per barrel, the current Brent Oil price is clearly far too low for the major oil producers of the Middle East.

Shale and heavy oil producers are often less vulnerable than Middle Eastern producers, because the entities funding their operations (that is, buyers of shares of stock and providers of debt) believe that “of course” oil prices will rise in the future because of scarcity. Because of this, they are willing to provide additional funding, even when a recent owner has gone bankrupt from low prices. Middle Eastern oil producers have less of this benefit. If the money isn’t available for major programs, they are forced to cut back. Growing debt is unlikely to cover more than a portion of the shortfall.

There are other producers in the energy price “stack” in Figure 4 that are vulnerable to collapse or bad outcomes from continued low energy prices. One example is coal producers in China. China seems to be experiencing Peak Coal because of continued low coal prices; While new mines have been opened, they do not act to increase the total quantity produced, because so many mines needed to be closed because they were losing money at current low prices.

Figure 10. China energy production by fuel, based on 2019 BP Statistical Review of World Energy data. “Other Ren” stands for “Renewables other than hydroelectric.” This category includes wind, solar, and other miscellaneous types, such as sawdust burned for electricity.

If the world economy is hoping for China’s increasing demand to pull the world economy forward in the future, it is likely kidding itself. China cannot expect imports to make up for its lack of growth in coal production. China’s lack of adequate energy supplies likely underlies the tariff issue that we hear so much about. There is a need to pull back production of goods from China, if China doesn’t really have the energy resources to continue in the role it has been playing.

The big question is how high oil prices will be in the future

The contention of the IEA and many others is that energy prices can rise arbitrarily high. For example, the IEA showed the figure I have numbered Figure 11 in its World Energy Outlook 2015 .

Figure 11. IEA Figure 1.4 from its World Energy Outlook 2015, showing how much non-OPEC oil can be produced at various price levels.

The big groupings in Figure 11 are

  • Conventional Crude (such as from the Middle East and perhaps deep water like Brazil),
  • Tight Oil from Shale, and
  • Extra Heavy Oil and Bitumen (such as from Canada and Venezuela).

Evidently, in 2015, the IEA believed that $300 per barrel oil prices were not too high to show as a possibility on a chart. With $300 per barrel oil, there would certainly be enough oil. At such a high price, it might be possible to move the city of Paris, France, out of the way and extract the tight oil from shale underneath it!

Unfortunately, in the real world, prices cannot rise this high. Market prices are set by the laws of physics. The economic limit we reach is a price limit that pushes the economy back into recession. We have seen in Figure 7 that this price limit seems to be dropping lower and lower, over time. In fact, I am one of the coauthors of an article published in the journal Energy called, An Oil Production Forecast for China Considering Economic Limits. This 2016 article makes the point that the economic limit we are reaching is a limit on how high oil prices can rise. I am the lead author of Section 2, which discusses this issue at length. If prices cannot rise high enough, the vast majority of the oil that seems to be available based on published reserve amounts and geological surveys cannot really be extracted.

Whether there are ways to raise oil and other energy prices higher than they are now remains to be seen.

Why don’t standard models forecast low oil prices in the future? 

Economists have put together a simple model of how the economy works. In their model, there are always substitutes. The only thing that goes wrong seems to be that prices rise, if there isn’t enough supply. These rising prices encourage greater supply and substitution. The type of chart a person typically sees is a Supply and Demand curve as shown in Figure 12.

Figure 12. Supply and Demand model from Wikipedia.
Attribution: SilverStar at English Wikipedia CC BY 2.5 (http://creativecommons.org/licenses/by/2.5)%5D, via Wikimedia Commons

They have never considered a situation where energy products are deeply buried within essentially all goods and services that are made. If there isn’t enough supply, a “smaller batch” of the world economy is made. We think of this as recession, but it can take on other forms as well:

  • Depression
  • Wars
  • Epidemics
  • Defaulting debts; falling prices of assets
  • Failing governments and intergovernmental organizations
    • Collapse of the central government of the Soviet Union in 1991
    • UK’s decision to leave the European Union
  • Increasing conflict between political parties and between countries
  • A reduction in globalization
  • Ultimately, the collapse of a civilization

Economists have not understood the connection between physics and the economy. There is a need for a sufficient quantity of affordable energy products every moment of every day. In fact, we seem to need a vastly increased quantity of inexpensive-to-produce energy supplies right now if we are to fix the world economy’s problems from an energy point of view. The “lower interest rates and more debt” way of hiding problems seems to be reaching an end point. If nothing else, interest rates today are close to as low as they can go.

Is the economy approaching a singularity?

In physics and math, a singularity is a point at which a function takes an infinite value. We end up with a situation that seemingly cannot exist. It is like dividing the number 1 by the number 0. No matter how many times that the number 0 is added together, it will never equal 1.

The economy seems to be reaching an equally strange situation. It is not a situation where we are running out of oil; it is a situation of too much wage disparity, and this wage disparity makes the prices of many commodities too low for producers of these commodities. For example, farmers cannot afford to pay their mortgages. And prices for all fossil fuels and many metals are too low for companies extracting these materials to make an adequate profit for reinvestment and taxes. The problem is not simply low oil prices.

This situation of excessive wage disparity is related to globalization, with many workers around the world earning very low wages, so that they cannot afford goods such as homes and cars. It is related to the increased use of robots substituting for manual labor. It is also related to wage disparity within countries as jobs become increasingly specialized.

As this situation plays out, energy prices fall when common sense would seem to suggest that they should rise. In fact, the problem of falling prices extends to more commodities than fossil fuels and food; it extends to minerals of many kinds, including copper and aluminum.

In such a situation of falling commodity prices, we can expect many related problems. For example, governments of countries that depend on the revenue of these exports may fail, leading to Balkanization of these countries in some cases. A wide range of debt defaults can be expected, leading to failing financial institutions that need to be bailed out. Rapidly changing relativities among currencies are likely to put markets for derivatives at the risk of failing. Needless to say, stock markets are likely to be adversely affected. So-called renewables will quickly fail because they are currently dependent on fossil fuels for repairs and the electric grid. In fact, it is hard to see any aspect of the world economy that can continue unaffected.

How does what appears to be an approaching calamity play out?

Perhaps it is fortunate that we don’t really know. Collapses of early economies seemed to take many years, typically over 20 years. Today, the world economy depends on global supply chains and the electric grid. The financial system is also very important. It is hard to believe that the overall system can stay together for many years, but perhaps, in parts of the world, it can. We just don’t know.

Given how connected the economy seems to be, and how widespread the problems seem to be at the singularity we are reaching, it almost appears that there is a plan behind what is happening. From what we can observe, there seems to be some literal higher power behind all of the energy flows that we observe in the universe. This literal higher power seems to have put into place all of the laws of physics. This literal higher power seems to also be behind all of the self-organizing elements within the universe, including humans, ecosystems and economies. I cannot help but wonder whether there is some plan for what is ahead that we don’t understand.

 

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,469 Responses to Debunking ‘Lower Oil Supply Will Raise Prices’

  1. Dan says:

    Sweet mother of God – Today is a defining point going forward. This trade war was and now most definitely is not easy to win. Agreed or disagree on if this outcome is the correct one at least we now know the direction. May be not a bad either.
    Ask yourselves how are we going to reindustrialize without massive debt and lower rates?
    Does the economy implode from within as millions need to train and are laid off with global trade in the gutter?
    More importantly ask yourselves if Gail is right – I think she is and I also believe we are going to wind up in the same place no matter what is done or not done.
    At the end of the day sooner or maybe 10 years tops it is going to come down to resources and strength – violent strength.
    Personally I see the crash in front of us and I sincerely believe it is going to be steep.
    Oil is going to crater and no one is going to be employed to buy it.

    • Things don’t look very good, do they?

    • Robert Firth says:

      I think there is now only one viable economic strategy: the one followed by Germany after the Weimar Republic had bankrupted the country. Look up “Rentenmark”.

      So, demonetise the dollar, let its value fall to zero, wiping out the debt, and then issue a “Rententhaler” as the new currency. Do pretty much what Germany did: back its value with real wealth owned by the government, such as national parks, national monuments, public infrastructure, Hillary’s emails, … whatever works.

      Then abolish all entitlements and replace them with a guaranteed minimum income, for anyone who is willing to work. After all, even seniors can dictate audiobooks for the blind; even schoolkids can clean up litter from the public realm. As long as the value of the work equals the value of the income, there need be no debt. Finally, kill the health insurance companies, have a single catastrophic health insurance scheme, and let cheap and routine health care be paid for out of pocket. If Cuba can do it at 5% of the current cost, the US can probably do it at 10%.

      • I can imagine a real possibility of creating a new currency and wiping out the existing US$. I am doubtful that this new currency would collect very much in real value in taxes, however. It would likely not be able to provide sufficient revenue to provide anything like a guaranteed minimum income. In fact, nearly all current jobs would simultaneously disappear. Networked electricity cannot be depended on for long. If many citizens are left without funds to pay for electricity, we can expect electricity from the grid will fail very quickly, if it hasn’t by the time the new currency comes out.

        It seems like shortly after the new currency comes out, there would be a substantial chance of the US central government failing. Or programs might be given back to the states. They might each make their own currency, for example. Or individual cities might create their own currencies. Convertibility would be very iffy.

        • which fits my thinking on it

          all currency can only remain viable if it is underpinned by its energy equivalent, which, as I see it, means that it must be inputting at a constantly increasing rate, because money is only ever a token of energy exchange.

          If the USA dollar was superseded by another currency form, that too would require equivalent energy to underpin its value.

          But of course the problem would be exacerbated by energy depletion, while economists would insist that is was some kind of ‘currency’ problem.

          If central government allowed regional currencies, then the next immediate step would have to be regional government—quickly followed by secession.

          Central govt would not have the means to hold the nation together without the necessary energy to do so. (force of arms?)

          That would bring on civil war almost immediately—which I think is highly likely anyway, driven by a mixture of economic denialism and jesus mania. (someone/thing would have to be blamed for it all.)

        • hkeithhenson says:

          “I can imagine a real possibility ”

          Being an engineer, I think in terms of technology, not finance. If it is an engineering possibility to build Hoover Dam, then chances are it will be done.

          The current trouble is that the future is more uncertain than it ever has been. I see no way to avoid the singularity and all that implies including humans no longer being in charge. But *when* is uncertain. Ray Kurtzweil thinks the mid-2040s. If that were certain, we could relax because there is enough fossil fuel to get us there.

          But it is far from certain.

          And the consequences of being wrong are really serious.

          • DJ says:

            What is the rewards of singularity and consequences of being wrong?

            • hkeithhenson says:

              ” rewards of singularity”

              Near godlike capability. This was discussed in great detail on the Extropian mailing list in the early 1990s.

              ” and consequences of being wrong?”

              They range up to extinction. On the other hand, it may be possible for people to transcend flesh (upload) which could amount to biological extinction without anyone dying.

              The long-range future of humanity looks seriously weird. What concerns me more is how things play out in the relatively short term as we run out of fossil fuels. If humanity does not implement an energy solution we are in for some very rough times.

              The only way I have found to write about this is to cast it as fiction. Some of this (from ten years ago) is up on the net. Some has never been posted.

            • DJ says:

              You can’t have that many Gods before they start competing.

            • hkeithhenson says:

              “they start competing.”

              It’s been considered, no conclusion. Being caught between waring AIs would not be good for you.

        • Robert Firth says:

          Gail, thank you, as so often, for a most thoughtful, informative, and challenging reply. please allow me to respond.

          First, I don’t worry about taxes. Today, most taxes support a transfer of wealth, typically from the politically weak to the politically powerful. i see taxes in a new economy as a balancing process: if your work doesn’t pay enough, you get a (small) subsidy; if it pays more than you need, you pay a (small) tax. Since almost everyone now has an incentive to work more profitably (and there are perhaps training and apprenticeship schemes to facilitate that), the taxes should be sustainable.

          Electricity is another issue, that with your indulgence I shall overlook.

          And yes, many local currencies may well evolve. But why should they be accepted? For the same reason Scottish banknotes were accepted in the nineteenth century: because, though not officially legal tender, they were backed 100% by gold.

          As for the failure of the US, and the collapse of the General Government: bring it on! Power corrupts; and absolute power corrupts absolutely.

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

    Negative interest rates are coming and they are downright terrifying
    https://news.yahoo.com/negative-interest-rates-japan-germany-france-150324580.html;_ylt=AwrC0F9qS2BdRj4AQQ.ZmolQ;_ylu=X3oDMTByOHZyb21tBGNvbG8DYmYxBHBvcwMxBHZ0aWQDBHNlYwNzcg–
    YahooNEWS
    Negative interest rates are coming and they are downright terrifying
    Andy Serwer with Max Zahn

    Yahoo Finance August 23, 2019, 11:03 AM EDT
    What if I said I wanted to borrow $100 from you and pay you back $99 five years later? Would you do it?

    Hell no!

    And yet this is exactly what’s happening right now in the banking systems of Japan, Germany, France, and other European countries.
    Negative interest rates — where the lender gets paid back less than they’ve loaned — now add up to 30%, (and counting), of the global tradable bond universe, according to JPMorgan (JPM). You may have seen for instance that Germany just sold the first negative yielding 30-year bond issue.

    In case you’re wondering, yes, this is crazy.

    “It’s really unusual and really distorting the global financial system,” says Torsten Slok, chief economist at Deutsche Bank Securities (DB). “I spend all my time talking about it
    Worse, negative rates are being normalized by economists, bankers, and commentators.

    Worst, I have a funny feeling this will end badly. Negative interest rates have all the hallmarks of serious trouble for the financial markets; an anomaly growing in scale which seemingly came out of nowhere that is under-recognized, poorly understood and dismissed as not consequential. (Flashing red lights here.

    What would happen if rates go negative in the U.S.? Who knows. Allianz Chief Economic Adviser Mohamed El-Erian, for one, says he would sound the alarm if treasury yields dip into negative territory. “If we do I’m going to be really worried because negative yields in the U.S., the world’s biggest financial market, will break things,” he told Yahoo Finance

    Break things!? Like this home run by Cabarra against my poor Boston Red Sox!
    Ouch

    Yes, negative rates are the new normal…Trump has already stated he’s looking to cut Social Security and Medicare in his next term of office. Take that you working stiffs!!

    • Country Joe says:

      U
      I heard that investors put their money where they get the best return. So they look at all the possibilities and the best they see is to only lose a little bit. This is the experts putting their money where their mouth is . They must figure that what’s coming is down so they shoot to go down as little as possible “terrifing”??? Is this not plain as day???
      Trumpster with the red button is kinda terrifying but negative interest is just plain old market.

      • Robert Firth says:

        “I heard that investors put their money where they get the best return.”

        Once again, sound classical economics, but from a world long gone. We now have a situation where interest rates are zero, and inflation is zero. In such a world, the optimum strategy is to invest nothing, put your money into a reliable store of value, and squirrel it away offshore. When there is no realistic return that can balance the risk, the dominant strategy is zero risk. Which seems to be exactly the conclusion the Japanese people reached a few years ago.

  3. mercurio says:

    “Most of the talk about renewable energy is aimed at electricity production. However, most of the energy we need is heat, which solar panels and wind turbines cannot produce efficiently. To power industrial processes like the making of chemicals, the smelting of metals or the production of microchips, we need a renewable source of thermal energy. Direct use of solar energy can be the solution, and it creates the possibility to produce renewable energy plants using only renewable energy plants, paving the way for a truly sustainable industrial civilization”.
    https://www.lowtechmagazine.com/2011/07/solar-powered-factories.html
    We need to replace the current hi tech technology with low tech. Agroecology instead of industrial agriculture. We already know how to replace everything without using fossils.

    • Agree, the methods of agroecology or rejuvenation agriculture, no till and so on have been greatly explored in recent years and decades to stunning success. However, this is labor intensive, albeit not in ancient drudgery but more constant oversight and planning sense, the people have to live there, and currently there are more people in the cities and suburbs than available land. Moreover all these practices work so spectacularly thanks to still available offsite grain inputs, which would diminish substantially otherwise. So the ideal desired ratio of people living on the land without or way smaller such support (cheating) is somewhat hazy concept, but likely way smaller than assumed even by the informed-well meaning pessimists.

    • But not in the quantity needed for today’s population!

    • Xabier says:

      A peasant wife going out with her children to collect fallen deadwood for fires, and hot-burning furze for her bread oven, was a perfect and 100% renewable energy system: the trees and the furze on the (communal) heath renewed themselves, the peasants also renewed themselves, generation by generation.

      Anything else is sheer fossil-fuel induced fantasy.

    • Robert Firth says:

      “Agroecology”? A fancy name for a very old idea:

      “Go to the ant, thou sluggard, consider her ways, and be wise” (Proverbs vi:6)

      The ants have been practicing agriculture and animal husbandry, sustainably, for over 50 million years. Their practice has no externalities: it cannot have, because it all happens inside the anthill. That is the main reason it is 100% sustainable. But humans are foolish.

      • Yes, as I tried to bring to focus elsewhere, the number of ant hills vs environment is always in some ~balance ratio, while the tour de force of contemporary humanoid terraforming drive is completely nuts both in scale and pace..

        • mercurio says:

          it is not a problem of resources, but of organization. Our society is structured in a certain way and radically change causes resistance which then results in conflicts. Only crises lead us to change.

          • Organization requires energy, and energy is part of resources.

            Crises can lead to change or collapse. Sometimes change can be good, but there is also a chance it will be bad.

  4. milan says:

    woe spoke to soon we did

    Trump ‘hereby orders’ US companies to leave China after attacking Fed chair

    Donald Trump ordered US companies to leave China on Friday after launching another blistering attack on Federal Reserve chairman Jerome Powell, asking “who is our bigger enemy, Jay Powell or [China’s] Chairman Xi?”
    Moments after Federal Reserve chairman, Jerome Powell, warned the US central bank was facing a “new challenge” as it deals with the Trump administration’s seesaw trade policies and ongoing dispute with China, Trump went on a Twitter rampage calling for a US boycott.

    https://www.msn.com/en-ca/news/newspolitics/trump-hereby-orders-us-companies-to-leave-china-after-attacking-fed-chair/ar-AAGettC?ocid=spartandhp

    • I see that the Dow Jones recorded a change of -623.34 today. Nasdaq was down even more on a percentage basis, -3.00%. WTI is shown as $53.97.

      Trade tensions are given as the reason why.

    • Jan Steinman says:

      As a Canadian, I find all this mildly amusing and terrifying at the same time!

      The rest of the world is the beneficiary of this trade war. China has devalued the Yuan to make up for Trump’s tariffs, which means Chinese goods are cheaper in Canadian Dollars than they were before.

      • milan says:

        @ Jan,

        As a Canadian, I find all this mildly amusing and terrifying at the same time!

        O’ what I wouldn’t give to be a fly on the wall listening in on the conversations in the boardrooms of these American companies? Just imagine?

      • Tim Groves says:

        Jan, as a Canadian, you’d better tell your Prime Minister to buy Greenland before the Yankees get their grubby hands on it just like they got Alaska.

        • Robert Firth says:

          A consequence of the 1867 purchase that seems to have been written out of history is the disastrous effect it had on the native population of the Arctic. Before then there was an informal agreement among the arctic powers (Russia, Denmark, Canada, …) that there would be no obstacles placed to the movement of the largely migratory tribes. The US repudiated that agreement, hoping to open Alaska to colonisation.

          Do not, not, not let them get their grubby paws on Greenland.

    • snarf says:

      Trade war with the fed? Will the Fed threaten to stop buying treasury bonds like China? 🙂
      🙂 🙂 :)This is becoming surreal.

  5. kschleunes says:

    I’m feeling a bit tense. I think collapse is about 2 years away.

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

      My date is based on numerology..
      02/22/2022 at 2:22 ….it’s based on the laws of the Universe
      π÷¥√£{~∆≥¶×¥=

      Easy Peasy

    • Davidin100millionbilliontrillionzillionyears says:

      “tense” can be quite similar to excited…

      we live in exciting times…

      collapse is happening now in some of the peripheral countries…

      it could reach us any day or week or month ahead…

      exciting!

      • snarf says:

        All the combat vets I know really don’t care for exciting. They all say boring is underrated. Not that we have a choice. Enjoy every day. Enjoy your loved ones Enjoy having ready access to food and energy. Collapse for the USA hopefully means we just have to live in squalor like the third world. If your an optimist. Seeing the polarity and hate that exists on both sides and fanaticism in the beliefs that are the basis for those beliefs I am not so sure if I am an optimist. Both sides participating in class differentiation one in the side of ownership and nationalism the other one the side of supposed social justice. Both thinly veiled arguments for continued consumption. I believe the focus should be that we are all neighbors. We are all just doing our best. People wont take responsibility for our situation. No one caused this situation but all of us. Their is no enemy.
        That bond is hard to find and I am not sure of its strength even when it exists. Polarity is not a good way to go into collapse. Our cultural addiction to creating a enemy against which aggression can be directed rather than taking responsibility for our situation and constructive actions is not a valid operating principle. It has worked for a bit but it will ultimately accelerate collapse timeline and sincerly hinder any feeble attempts we can make to deal with constructively and appropriately.

        • Kowalainen says:

          Collapse is only inevitable if you guys continue being busy reproducing like cockroaches.

          Why don’t you just stop the sect mentality of the glory of reproducing and raising children. It’s enough now. We don’t need more useless eaters perpetrating the horrors of BAU.

          • trouble is—

            it always seems a good idea at the time

            • Kowalainen says:

              Just learn to say no. Even if it’s might have consequences for the relation. It really works, trust me. 😉

            • lolololol

              have you ever tried to say no to a determined female?
              Try it–and I guarantee she will go off and find someone who doesn’t say no

              I am too fond of my face to risk cutting my nose off.

            • Kowalainen says:

              Well, there isn’t a lack of woman on planet earth. You have to learn that there is no need to accept the first of which you happen to stumble across on your way through life, and then oblige to every expression and horror of BAU that comes bundled with your partner.

            • i shall tell her that

              she will appreciate the stumbled over bit

            • Kowalainen says:

              Truth hurts, darling, truth hurts.

            • ah—but that is but a brief passing phase

              the beauty of it all is when they all grow up smarter than you.

              And grandkids even smarter

              Then you can sit back with a smug expression and say—yup—there’s something of me there, but somehow more than that, as you watch them fly.

              Sorry–but that’s human nature. (and all because I couldn’t say no at the time)

            • Kowalainen says:

              Nothing wrong with kids. Just not too many of them. 🙂

              They only appear smarter than you because you grow humbler with age and more aware of your own limitations… Oh, well, now that I think about it… 😉

              Plus that the signaling inside the brain grows slower with age. The CPU loses a few megahertz per year. But the wiring is still mostly intact and is pretty useful when your kids and grandkids come for your advice, right?

              It is a tragedy with our short lifespan. Once age sets in and mind becomes more calm, kind, compassionate, then it is about to kick the bucket. Well, it is true except for the rascal which happens to be my dad.

          • Or even if the US, Europe, Russia and Japan, stop, the rest of the world doesn’t stop. And rising longevity in the less developed parts of the world to add to population growth as well. Population rises and rises.

    • doomphd says:

      “I cannot help but wonder whether there is some plan for what is ahead that we don’t understand.” –Gail

      you remind me of the last-minute revelation in one of Rod Serling’s Twilight Zone episodes: “but professor, ‘To Serve Man’– it’s a cookbook!”

      great post. i just have a dark view of the plan.

    • Xabier says:

      Understandable! But, personally, I find all my senses heightened by the tension, and the enjoyment of life hugely increased.

      And my intellectual satisfaction in understanding what is happening.

      ‘Enjoy the shining hour of sun’…….

      As for ‘prepping’: one must of course make plans for self-help, it’s only sensible: but they can only be limited in efficacy in a declining and fragmenting system: so I take a hint from General Alexander in WW2, who after setting a big offensive in motion, went off watercolour painting by a river to chill out.

      ‘How can you possibly relax?!’ he was asked. ‘Well, I’ve planned for months, used the very best intelligence we have, given all the necessary orders, and it’s for my commanders to do their bit now. We’ll see in a few hours how it’s all going.’

      A balance and sanity that often seems lacking these days.

      • Harry McGibbs says:

        Amen, Xabier. Que sera sera.

      • Robert Firth says:

        Helmut von Moltke did the same at the opening of the Franco Prussian war. He delegated almost everything to his subordinate commanders, and spent most of the time reading a novel.

    • Well, collapse is a process, not a firm point, although people might remember sequential thresholds when looking back in sort of rear view mirror at this. For example this particular year and month I lost the job; from this and this date the gov food vouchers for our family where good only for a one week in a month; around that time the electricity went down for continuous two weeks for the first time. And so on..

      GOVs at least among IC hubs have planning and resources for reaction (and mitigation) to “disaster events” – mind you essentially to protect themselves – so, there will be various “organized” attempts to circle the wagons and make the public live with the limited supplies and fracturing JITs workarounds..

      Lets say from the time there is something like “temporary closure” of banks, there could be even few more years of industrially harvested food in selected “lucky” countries, but obviously no frivolous car driving to office jobs and “energy soaked” leisure activities anymore for the many etc. After that it won’t be pretty.. 2-3yrs, 15yrs, who knows, it will be very regionally fragmented..

      • ooops obviously: gov vouchers were good for a limited time..

      • Country Joe says:

        Remember Pearl Harbor.
        Dec. 6,1941 with sunrise on the white sand beaches.
        Then Dec. 7 and it was bombs and bullets that came in with the dawn.

        • and incoming warnings preceding that Dec6-7 date, hence a process…

          • Robert Firth says:

            There were many warnings of the attack on Hawaii. My favourite was written by Morgan Robertson and called “Beyond the Spectrum”. Published in 1914, by the way. Of course, in 1914 Japan had perhaps the best trained and equipped navy in the Pacific, which had proved itself at the battle of Tsushima.

        • Robert Firth says:

          Another irony of history. The commander of the attack force, Nagumo Chuichi, lost the Pacific War in thirty minutes, when he refused to launch the planned third wave attack, in spite of the repeated urgings of his subordinates. That attack would have destroyed most of the harbour installations, and rendered the base essentially inoperable for a year or more.

          “When you strike at a king, you must kill him” (Ralph Waldo Emerson)

          • wars are full of ironies

            if Hitler hadn’t declared war 4 years too early, then thrown out/killed the very people who would have built his ultimate superweapon

            He would have achieved world domination

    • snarf says:

      LOL. That’s the doomster buzz. Not panic. That’s too intense. Two years out is just perfect.
      Just to remember to move the flag as you go.
      How long has it been since the original two years out discussion on this blog? 5 years? six? I forget.

      • Well, collapses sort of sneak upon you in the background while you sleep and dream..
        For example, one hundred yrs+ ago it would not had been very realistic prediction that future of ~2019 will consists of several key cities within the UK under Muslim mayor.. , don’t you think. Similarly, who would have thought that to get quality replacement bearing you have to order now from Turkey (ok apart from Japan)..

  6. Tim Groves says:

    Yey! In an effort to out-virtue-signal his rivals for the Democratic nomination, Bernie has promised 100% electricity from renewable energy and 20 million new green jobs by 2030 and achieve “full decarbonization” by 2050! What’s not to like?

    Bernie’s speech apparently upset coal magnate David Koch so much that he’s died, leaving a US$48 billion estate. I wonder if I’m in line for a modest slice of that legacy?

    Democratic presidential hopeful Bernie Sanders on Thursday unveiled a $16.3 trillion climate change strategy on a tour of northern California that included meeting families displaced by deadly wildfires and a rally in the state capital Sacramento.

    The plan would “launch a decade of the Green New Deal”, a 10-year federal “mobilization” that would factor climate change into every policy action from immigration to foreign policy while promising to create 20 million jobs in the process.

    The U.S. would generate 100% of its electricity from renewable energy by 2030 and achieve “full decarbonization” by 2050, according to the plan.

    “We are going to invest massively in wind, solar and other sustainable energies,” Sanders told a cheering crowd that had braved near triple digit temperatures to see him in a downtown Sacramento park.

    Addressing about 5,000 people inside and outside the park, Sanders accused fossil fuel companies of being willing to destroy the planet for short-term profits.

    “We cannot turn our backs on this crisis,” Sanders said. “We have got to lead the entire world in a new energy direction.”

    His plan outlines dozens of policies to aggressively move the United States off fossil fuels in the electricity, transportation and building sectors.

    https://www.reuters.com/article/us-usa-election-sanders-climate-idUSKCN1VC15L

    • snarf says:

      I want UBI and carbon free (guilt free) energy. And a date with Ariana Grande. Any candidate that cant deliver wont get my precious vote or a like on facebook. I’m not fooling around. Serious business. No facebook likes.

    • Robert Firth says:

      Millionaire Sanders held his rally in one of the larger homeless camps in Sacramento, of course only after the homeless had been forcibly evicted. He then promised to create 20 million jobs, which would be filled by 20 million immigrants being paid starvation wages, to enrich him and his fellow millionaires even more. And larded his speech with “green” virtue signalling which will please rich liberals and grind the native working poor down even further.

      And this man is a socialist?

    • Grant says:

      So the added cost of green energy equates to something more than 20million salaries?

      If they are decent salaries befitting skilled renewable energy workers that sounds like a lot of overhead.

  7. Tim Groves says:

    Meanwhile, Greta continues her voyage to the New World in a seriously zero-emissions carbon- neutral boat.

    • Volvo740 says:

      🙂 That’s not the boat!!

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

        It isn’t? How about that, Tim not being honest…I’m shocked, I’ll tell you SHOCKED!
        Greta best get with it….we are way past the threshold of cutting back and now looking at geo-engineering to save out butts….LOL

        Geoengineering: ‘Plan B’ for the planet
        https://m.phys.org/news/2019-08-geoengineering-planet.html
        That has opened the door to a host of geoengineering schemes, and an under-the-radar set of global industry guidelines, currently in review, which could help mainstream them.
        Here is a menu of “Plan B” geoengineering solutions, and their potential drawbacks:

        I’m adding a beach umbrella and sun screen to my survival pack….along with Twinkies,they last basically forever

      • Robert Firth says:

        No, that’s Leif Erikson about to make landfall in Vinland. Photo by Josh Gates. You know, I really admire Greta for making this voyage. It shows up all the rich and important climate goons why fly around in their private jets while telling the rest of us to eat roots and termites.

        One of them denounced her for using a ship whose manufacture was rather carbon intensive. Typical pig ignorance of the tribe: the carbon created by its manufacture is “sunk cost”, and should have no bearing on present decisions about its use.

    • doomphd says:

      the beef hard tack that powered the oarsmen was not carbon neutral. just being picky. they made up for the carbon expended when they got to England.

      • Robert Firth says:

        Hey, of course beef is carbon neutral. The carbon in the beef comes from the cow; the carbon in the cow comes from the grass; the carbon in the grass comes from the air, sequestered by photosynthesis. It’s a closed cycle, the Carbon Cycle.

        • On the condition it spends on the same grass only few days per year (and only say 1-2days in hotter CulbMed/ME climate), which is exactly NOT what has been made since domestication.. hence the resulting enviro-depletion..

        • doomphd says:

          the Vikings cut down their forest to make grassland for their cows. in the process, they lost/impacted a CO2 sink, like they’re doing for Macdonalds’ hamburgers in the Amazon Basin today.

          • Robert Firth says:

            Agreed. The deforestation is an ecological “capital” cost, but the subsequent agriculture was carbon neutral. The answer is to replace the trees on land with less arable potential. Mediaeval England did that (the “New Forest”), and so did Germany. Edo Japan did the same, and restored the archipelago to about 75% forest, where it remains to this day.

            But we don’t do that anymore; the loss of carbon sequestration is an “externality” and so somebody else’s problem. Because today we know the price of everything, and the value of nothing. Sorry for again exposing my pessimism.

    • Xabier says:

      And on arrival, the Vikings (the power-unit) could replicate themselves within entirely biological limits – as we in Britain know all too well!

    • MG says:

      Naturally, she has made it herself!

  8. H.C. says:

    This all reminds me at the ETP-Modell… prices go down… thats it… boom…..

    In my blog i have two articles in german, whereby the sildes are in english:
    https://limitstogrowth.de/2018/07/19/warum-folgt-der-oelpreis-nicht-dem-etp-modell/
    https://limitstogrowth.de/2018/05/24/etp-modell-nr-2-ein-anderer-und-einfacherer-ansatz-der-modellierung/

    Slides:
    http://limitstogrowth.de/wp-content/uploads/2018/05/2018-05-23_etp_thermal_equilibrium.pdf
    https://limitstogrowth.de/wp-content/uploads/2018/07/2018-07-14_etp-modell-price_explanation_v1_0_3.pdf

    It’s guest post from a physics guy that is concerned with related stuff. He tried to follow the Hills Groups Calculation (ETP-Modell) an came out with the same conclusions.

    The second slide-set tried to fit oil-market prices to the suggested “upper price boundary” that the ETP-Model forecasts.

    Interesting stuff!

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

      Wow, haven’t seen that here for a while….Shortie still plugging along with his posts at PO website along with other instant Doomers…Quite entertaining. As I wrote if the Hill Group is only half right 😂 we are in deep poopoo.
      PS Gail doesn’t like the ETP the last time she commented on it.
      Well, when it’s over we may as well go out listening to a good time…
      Sugar Ray

      Nothing we can do..the hand is in control

    • Thanks! I especially liked the thermal equilibrium slide PDF.

      I am not quite as sure of the “hog cycle” view of price adjustment. Fitting to too short a piece has problems.

      • H.C. says:

        Hi Gail,

        for me that whole thing is still a bit opaque, since the math stuff exceeds my level of math- udn physics competence – but I meet Bernd Warm in person – and he is a kind, smart and interesting guy. I trust his expertise in this regard.

        In addition to what the ETP-Model might say or not – your explanation and that what the ETP describes match – from my perspective – together.. in the dynamics and in regard to the possible timing.

        May coal and gas support us and subsidize the oil production for some more years to come. Then “other consequences” are to terrible to engange into…

        Best,
        H.C.

        • No, it is the EROI of the overall system that counts, not individual products, such as oil. All of the prices become too low at the same time. Oil is simply the most internationally traded of the fuels.

          If we try to replace coal with a lower EROI energy production system, we have a huge problem.

          Subsidizing wind and solar tend to reduce prices for the electrical system, bringing it down sooner. Letting wind and solar go first is a huge subsidy in itself. This is a different problem than their EROI problem.

        • Robert Firth says:

          Hi HC. My math is, I think, up to the task. The second slide set ends in June 2018, so we have 14 months of prediction to test against reality. And it fails, dismally.

          Almost any technique can “predict” the past with neat curves, including predictions based on the motion of the planets. But only a technique with a solid grounding in physics can predict the future. The ETP model is based not on physics but on economics, and the economics of a very unfree market system at that. So of course it fails.

          The price of oil has two main components: the cost of production and the “use value” of consumption: that is, the amount of useful work it can do. A longer commute, for example, is definitely not “useful work”, so should have minimal effect on the oil price. A more efficient way of producing, say, textiles does represent an increase in useful work, and will therefore cause an increase in the use of oil (Jevons’ Paradox again) and an increase in price.

          But that doesn’t seem to be happening. Production is getting more demanding of energy, not less, which implies a decrease in oil prices (the same oil makes fewer widgets, so the cost per widget must be reduced).

          But we have knows all this since 1776; the “progress” in economic theory is mostly driven by a refusal to accept the laws of nature and an attempt to replace them with fairy tales.

  9. MG says:

    Definitely, the too low prices for the energy producers is the problem for the countries that require huge imports for the survival of their populations.

    The problem is usually more serious than it looks at first sight, e.g. the exports/imports of Venezuela look like o.k., but when you add the fact that the state subsidizes energy prices for the domestic population, the fall of energy exports is in reality even deeper energy deficit.

    • If a leader doesn’t want to be overthrown, he needs to maintain subsidies of local production. In effect, a government is not collecting the high tax rate it gets on the portion going to local citizens. The high taxes are only on exported oil. This is a rebate that oil exporters have tended to give, since they began exporting. Now the size of the subsidy sometimes exceeds the would-be tax rebate, so the size of the subsidy needs to be reduced, causing hardship for local citizens.

  10. MG says:

    The Sun is leaving us here in Northern Hemisphere: we are going to use rising amounts of fossil fuels to overcome the cold. On the other hand, we do not have to fight against most of other species (plants and animals), as the cold (the lack of the energy from the Sun that shines for all species) takes control over them.

    But what about the vitamin D?

    https://news.curtin.edu.au/stories/australians-deficient-sunshine-vitamin/

    Vitamin D deficiency in winter by state and territory, 2011- 2012. (Source: Australian Health Survey: Biomedical results for nutrients.)

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