Our Energy and Debt Predicament in 2019

Many people are concerned that we have an oil problem. Or they are concerned about recession and the need to lower interest rates.

As I see the situation, we have a problem of a networked economy that is not functioning well. A big part of this problem is energy-related. Strange as it may seem, energy prices (including oil prices) are too low for producers. If debt levels were growing more rapidly, this low-price problem would go away.

The “standard way” of encouraging more debt-based purchases is by lowering interest rates. But we are running out of room to do this now. We also seem to be running out of economic investments to make with debt. If expected returns on investment were greater, interest rates would be higher.

Without economic investments, demand for commodities of all kinds, including energy products, tends to stay too low. This is the problem we have today. Our debt problem and our energy problem are really different aspects of a networked economy that is no longer generating enough total return. History suggests that these periods tend to end badly.

In the following sections, I will explain some of the issues involved.

[1] Our problem is not just that oil prices are too low. Prices are too low for practically every type of energy producer, and in many parts of the globe.

Oil: OPEC oil producers have cut back production because they view oil prices as too low. OPEC reports a cutback in production of 2.7 million barrels per day between November 2018 and July 2019 (from 32.3 million bpd to 29.6 million bpd).

In the US, there has been an increase in bankruptcies of oil producers during 2019, relative to 2018. There has also been a reduction in the number of oil drilling rigs of 17% since the week of November 16, 2018, according to reports by Baker Hughes. These are signs of producer distress.

Natural gas: While recent US natural gas prices have bounced up off their recent lows, as recently as August 8, 2019, we were reading:

U.S. gas futures this week collapsed to a three-year low, while spot prices were on track to post their weakest summer in over 20 years. In other markets, such lackluster pricing would cause investment to retrench and supply to contract.

But gas production is at a record high and expected to keep growing. Demand is rising as power generators shut coal plants and burn more gas for electricity, and as rapidly expanding liquefied natural gas (LNG) terminals turn more of the fuel into super-cooled liquid for export.

Analysts believe the natural gas market is not trading on demand fundamentals because supply growth continues to far outpace rising consumption. Energy firms are pulling record amounts of oil from shale formations and with that oil comes associated gas that needs either to be shipped or burned off.

When we look worldwide, we see that the Wall Street Journal is reporting, “U.S. Glut in Natural Gas Supplies Goes Global.” A chart from that article shows falling natural gas prices in Europe and Asia, almost to the level of US natural gas prices.

Coal: The US Energy Information Administration writes, “More than half of US coal mines operating in 2008 have since closed.” USA Today writes, “Is President Trump losing his fight to save coal? Third major company since May files for bankruptcy.”

China has also been closing coal mines in response to low prices. Its coal production ramped up quickly after it joined the World Trade Organization in 2001, but since the 2012 to 2013 period, production has been close to level. An academic paper talks about a “de-capacity program” undertaken in China in 2016 in response to plunging coal prices and overall financial loss of coal enterprises.

Figure 1. 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.

Uranium: A recent article says, “Plummeting global uranium prices hit Namibia hard.” Another article talks about the huge amount of capacity that has been taken off-line because of continued low uranium prices. The article estimates that 25% to 35% of global uranium production had already been taken off-line by the time the article was published (May 20, 2019).

Ethanol: According to the Wall Street Journal, the ethanol industry has been losing money since at least 2015, and is now closing ethanol plants in three states. The trade war has exacerbated its problems, but clearly its problems began before the trade war.

[2] The general trend in oil prices has been down since 2008. In fact, a similar trend applies for many other fuels.

Figure 2 shows that oil prices since 2008 have been trending downward.

Figure 2. Inflation adjusted weekly average Brent Oil price, based on EIA oil spot prices and US CPI-urban inflation.

Figure 3 shows that other energy prices have been following a similar price trend to that of oil. This situation happens because energy products are primarily used in finished goods and services of many kinds, such as cars, homes, vacation travel, and air conditioning. If demand for finished goods and services is high, prices for all commodities can be expected to be high; if demand for finished goods and services is low, prices for all commodities can be expected to be low. Thus, it shouldn’t be too shocking that the problem of prices that are too low for energy producers is very widespread.

Figure 3. 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. They are annual averages, so smooth out quite a few smaller bumps.

[3] The situation of prices being too low for many types of energy producers simultaneously is precisely the problem I found back in December 2008 when I wrote the article Impact of the Credit Crisis on the Energy Industry – Where Are We Now? 

The article mentioned was written in December 2008. If we look back at Figure 2, this was a time when oil prices were very low. I had first noticed a cutback in credit of various kinds (including credit card debt and mortgage debt) in the middle of 2008, about the time oil prices crashed. Later in the year, additional financial problems emerged, including the collapse of Lehman Brothers. Banks became less willing to offer credit to buyers who were deemed insufficiently creditworthy.

In my December 2008 article, I wrote about suppliers in various supply chains not being able to get credit. Without credit, supply chains could not operate. Businesses depending on supply chains were forced to cut back on their purchases. In fact, some suppliers went bankrupt. Workers were laid off in this process; these layoffs added to the lack of buyers for finished goods and services. Energy prices of many types crashed simultaneously because of the lack of demand for commodities used to make finished products of many kinds.

The fix for the problem back in late 2008 was for the US to begin Quantitative Easing. Quantitative Easing lowered longer-term interest rates and allowed more credit to get back to supply chains. By 2011, oil prices had risen to a level that was more tolerable for producers. These higher prices slowly slipped away, especially disappearing when the US discontinued its Quantitative Easing program in 2014.

If a person looks at the late 2008 situation, it is clear that a lack of debt availability indirectly led to low commodity prices. Prices dropped almost vertically when the debt bubble popped. This time, the situation is a little different. We arrived at low prices through the long diagonal black dotted line on Figure 2; this time other factors besides an obvious lack of debt have been involved.

One issue that seems to be involved this time is a shift in relativities between the dollar and other currencies, making energy products more expensive for those outside the US.

A second contributing issue this time is growing wage disparities, as goods are increasingly manufactured in low-wage countries. Low-wage workers (both in developing countries and in advanced economies trying to compete with developing countries) are less able to buy finished goods and services. This contributes to the lack of demand for finished goods and services using commodities of all kinds, including energy products.

[4] In the right circumstances, a rapidly growing supply of cheap energy products can help the world economy grow.

If we look back, there was a period of rapid growth in the world’s energy consumption between World War II and 1980. This was a period of rapid growth in the world economy.

Figure 4. Average growth in energy consumption for 10 year periods, based Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent.

In fact, both population and energy consumption per capita were growing. This growing energy consumption per capita allowed living standards to grow as well (Figure 5).

Figure 5. Energy growth amounts shown in Figure 4, divided between amount that supported population growth (based on 2019 world population estimates and earlier estimates by Angus Maddison) and all other, which I have called “living standards.”

Most people would agree that a major increase in living standards took place between World War II and 1980. New buildings were constructed to replace those destroyed or damaged during World War II. Many people were able to buy cars for the first time. Interstate highway systems were built. Electric transmission lines were built, and oil and gas pipelines were laid. In rural areas, homes were often electrified for the first time. With the aid of energy saving appliances and birth control pills, many women joined the workforce. The US, Europe, Japan, and the Soviet Union all saw their economies grow.

[5] It is striking that the period of rapid energy consumption growth between World War II and 1980 corresponds closely to the long-term rise in US interest rates between the 1940s and 1980 (Figure 6).

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

If interest rates rise, it becomes more expensive to borrow money. Monthly payments for homes, cars, and new factories all rise. Evidently, the US economy was growing robustly enough in the 1940 to 1980 timeframe that US short term interest rates could be raised without much economic harm. The big concern seemed to be an overheating economy as a result of too rapid growth.

The huge increase in interest rates in 1980-1981 put an end to any concern about an overheating economy (compare Figures 6 and 7). Oil prices came back down once the world economy was in recession from these high interest rates.

Figure 7. Historical inflation-adjusted Brent-equivalent oil prices based on data from 2019 BP Statistical Review of World Energy.

[6] Starting about 1980, the US economy began substituting rapidly growing debt for rapidly growing energy supplies. For a while, this substitution seemed to pull the economy forward. Now growth in debt is failing as well.

Figure 8 shows how the ratio of total US debt (including governmental, household, business and financial) has changed since 1946. It becomes clear that once the big “push” that the economy received from rising consumption of energy products began to fail about 1980, the US moved to the addition of debt as a substitute.

Figure 8. Ten-year average increase in US debt relative to GDP. Debt is “All Sectors, Liability Level” from FRED; GDP is in dollars of the day.

I think of debt as being one of many kinds of promises. Figure 9 illustrates that while the total amount of goods and services has been growing, debt levels and other kinds of promises have been growing even more rapidly.

Figure 9. Promises of future goods and services tend to rise much more rapidly than actual goods and services. Chart by Gail Tverberg.

Many things can go wrong with this system. If the growth in added debt slows too much, we can expect to start seeing financial problems similar to those we saw in 2008. Also, if the level of debt (such as student debt) gets too high, its payback interferes with the purchase of other needed goods, such as a home. If energy providers decide prices are too low and stop producing, then promised Future Goods and Services can’t really appear. Huge defaults on promises of all kinds can be expected. This happens because the laws of physics require the dissipation of energy for physical processes underlying GDP growth.

[7] Since 2001, world economic growth has been pulled forward by China with its growing coal supply and its growing debt. In the future, this stimulus seems likely to disappear. 

Figure 10. Figure similar to Figure 5, with bump that is primarily the result of China’s accelerated growth circled.

China has been financing its rapid economic growth since 2001 with growing debt.

Figure 11. China Debt to GDP Ratio, in figure by the IIF.

We know that low prices for coal have led to flattening production since the 2012 – 2013 period (Figure 1). In fact, part of the reason for the flattening of non-financial corporate debt in recent years in Figure 11 may reflect swaps of uncollectible coal mine debt for equity, removing part of coal mine debt from the chart.

The failure of coal production to grow rapidly puts China at an economic disadvantage because coal is a very low-cost energy source. Any substitution, even imported coal, is likely to raise its cost of making goods and services. This makes competition in a world economy more difficult. And China’s debt level is already very high, putting it at risk of the problems discussed in Section [6].

[8] The world economy needs much more rapidly growing debt if energy prices are to rise to a level that is acceptable to energy producers. 

Debt acts like a promise of future goods and services. Growing debt, plus increases in other types of promises of future goods and services, helps to keep energy prices high enough for energy producers. There are at least three reasons that growing debt helps an economy:

First, increasing debt can be used to build factories, and these factories hire large numbers of people. The factories utilize various raw materials and energy products themselves, raising demand for goods and services. Furthermore, the workers hired by the factories, with their incomes from their jobs, also raise the demand for goods and services. These goods and services are made with commodities. Growing debt thus raises demand for commodities, and thus their prices.

Second, increasing debt levels by governments are often used to hire workers or to raise benefits for the unemployed or the elderly. This has a very similar effect to building new factories. These workers and these beneficiaries can afford more goods and services, and these goods and services are made using commodities. Governments also use some of their funds to build schools, pave roads and operate police cars. All of these things require energy consumption.

Third, consumers can afford to buy more of the output of the economy, if their debt levels are increased. If debt can be structured so that anyone who walks into a car dealership can afford a new car (such as longer durations, lower interest rates, and no down payment), this added debt allows increasing demand for new cars. It also allows increasing demand for the energy products used to make and operate these new vehicles. Furthermore, if new homes can be made more affordable for young people, this works in the direction of adding more mortgage debt.

The Institute of International Finance (IIF) reports that the ratio of world debt to GDP (red line on Figure 12) has been falling since 2016. This falling ratio of debt to GDP no doubt contributes to the low-priced energy problem with which energy producers are now struggling.

Figure 12. IIF figure showing total world debt and the ratio of total world debt to GDP.

Non-debt promises of many types can also have an impact on energy prices, but it is beyond the scope of this article to discuss their impact. Some examples of non-debt promises are shown on Figure 9.

[9] The world economy seems to be running out of truly productive uses for debt. There are investments available, but the rate of return is very low. The lack of investments with adequate return is a significant part of what is preventing the economy from being able to support higher interest rates.

In a self-organizing networked economy, market interest rates (especially long-term interest rates) are determined by the laws of physics. Regulators do have some margin for action, however. They can raise or lower certain short-term interest rates. They can also use their central banks to purchase existing securities, thereby influencing both short- and long-term interest rates. In addition, they can indirectly affect the system by raising and lowering tax rates and by adopting stimulus programs.

Market interest rates, in some sense, tell us how productive investments truly are at a point in time. Years ago, investments that the economy was able to make were far more productive than the investments we are making today. For example, the first paved road in an area had a huge beneficial effect. New roads were able to open whole areas up to commerce. Once an area had been developed, later investments were much less beneficial. Fixing up a road that has many holes in it takes energy and materials of many types, but it doesn’t really add productivity to the system. It just keeps productivity from falling.

After a point, adding new roads or other infrastructure doesn’t add much of anything. This is especially the case if population is level or falling. If population is falling, it would likely make sense to reduce the number of roads, but this is difficult to do, once there are a few occupied homes along a road.

As another example, a car that gets a person from home to work is a great addition if the vehicle allows the person to take a job that he could not otherwise take. But added “bells and whistles” on cars, such as air conditioning, a musical system, sturdier bumpers, and devices to reduce emissions, are of more questionable value, viewed from the point of view of allowing the economy to function cheaply and efficiently.

Another type of investment is education. At one point, a high school education was sufficient for the vast majority of the population. Now additional years of schooling, paid for by the student himself, are increasingly expected. An investment in higher education can be “productive,” in the sense of helping to differentiate himself/herself from those with no post-secondary education. But the overall level of wages has not been rising enough to compensate for all of the extra education. It is the growing complexity of the system that is forcing the need for extra education upon us. In a sense, the extra education is a tax we are required to pay for having a more complex system.

The need for pollution control might be considered another kind of tax on the system.

Our hugely expensive health care system is another tax on the system. After paying the cost of health care, workers have less funding available for buying or renting a home, raising a family, food and transportation.

[10] Since 1981, regulators have been able to prop up the economy by reducing interest rates whenever economic growth was faltering. Now we have pretty much run out of this built-in source stimulus.

Many observers have noted that central bankers are running out of tools to fix our economic problems. The lack of room to take down interest rates can be seen in Figure 6.

Figure 13 shows that long-term patterns of reductions in interest rates (darker bands) have happened previously. These reductions in interest rates came to an end because they couldn’t go any lower, given inflation expectations and likely levels of defaults. We seem to be facing a similar situation today.

Figure 13. Chart from the Financial Times showing historic interest rates and periods during which interest rates fell.

According to Figure 13, there have been three periods of falling interest rates in the last 200 years:

  • 1817-1854
  • 1873-1909
  • 1985-2019

In the gap between the first two periods of falling interest rates (1854 to 1873), the US Civil War took place. This was a period of very poor return on investments. Somehow it ended in war.

Immediately after the second two periods of falling interest rates (after 1909), the world entered a very unstable period. First there was World War I, then the Great Depression, followed by World War II.

Now we are facing the possibility of yet another end-point for the take-down in interest rates.

[11] The total return of the economy seems to be too low now. This seems to be why we have problems of many types, ranging from (a) low interest rates to (b) low profitability for energy producers to (c) too much wage disparity. 

All of the problems listed above are manifestations of an economy that is not producing sufficient total return. The laws of physics distribute the problem to many areas of the economy, simultaneously.

A person wonders what could be ahead. We seem to be reaching the end of the line regarding the takedown of interest rates, as shown in Figure 13. If a takedown in interest rates is possible, it acts as a relief valve for some of the other problems the economy is facing, including too much wage disparity and energy prices that are too low for producers.

In Section [10], we saw that when the relief valve of lower interest rates had disappeared, wars and depressions have taken place. We can’t know the precise outcome this time, but our current situation doesn’t look good. Will we encounter wars, or a serious depression, or financial problems worse than 2008? We can’t know for certain. Or will we somehow find a way around serious problems?

 

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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1,324 Responses to Our Energy and Debt Predicament in 2019

  1. Yoshua says:

    The Fed has lost control of the Repo rate? There’s a liquidity problem? The Fed will have to drop the rates to zero and restart QE?

    https://www.zerohedge.com/markets/did-fed-fail-repo-rate-refuses-drop

  2. Harry McGibbs says:

    “After issuing more than 17 billion cedis ($3.1 billion) in bonds over the past two years to bail out banks and repay energy arrears, Ghana faces a new debt risk. Independent power producers dismissed a plan by Finance Minister Ken Ofori-Atta to renegotiate deals for surplus supply and said they will only accept a termination settlement of $2 billion.

    “The West African nation has almost double the capacity to meet its peak demand of about 2,700 megawatts, a luxury that contributed to an additional 5.1 billion cedis, or 1.5% of gross domestic product, to Ghana’s liabilities this year alone.”

    https://www.bloomberg.com/news/articles/2019-09-18/after-bank-bailout-ghana-power-deals-risk-new-debt-headache

    • Harry McGibbs says:

      “Nigeria has received a legal hiding after a UK court awarded a private company a $9.6 billion judgment debt against the West African nation. The ruling has generated significant attention in both domestic and international media. This is understandable given that the sum amounts to 20% of the country’s foreign reserves. This means it poses a significant threat to its economy…

      “How did Nigeria end up in this costly situation? For the answer, we must look back to January 2010 and a gas supply contract that went horribly wrong.”

      https://qz.com/africa/1710707/how-nigeria-got-hit-with-a-9-6-billion-judgment-debt-in-the-uk/

      • Robert Firth says:

        Brief and not necessarily unbiased summary:

        A company called P&ID signed a contract with the Nigerian government to develop the latter’s gas industry. As part of the bargain, Nigeria would build gas pipelines and other transport facilities. They did nothing. P&ID likewise agreed to acquire land and build gas processing plants. They also did nothing.

        P&ID therefore claims as damages the full amount of profit they estimated they would have acquired over the 20 years of the agreement, profit made from processing gas Nigeria could not supply to the processing facilities P&ID never built.

        Why they won, I have no idea. Both parties were in breach of the contract, which, being a bear of little brain, I feel should have been reason enough for the Tribunal to declare the whole thing null and void and to tell both parties to suck it up and go away.

        The contract further provided that arbitration, if needed, would be conducted in a venue agreed by both parties. P&ID named London. Nigeria did not agree, but the tribunal went ahead anyway. Any honest court would now rule that the actions of the tribunal were ultra vires, and overturn this judgement.

    • I tried to look up a little more about Ghana. Based on what the EIA has to say, the true availability of Ghana’s electricity is a lot lower than the high supposed capacity. Its generation is reported to be 42% from hydropower and 58% from oil and gas powered plants. The hydropower is subject to problems because of “low seasonal rainfall levels.” Obtaining natural gas has been a problem:

      To fill the gap created by unreliable pipeline natural gas imports and to accommodate growing natural gas demand, which is entirely driven by the power sector, the Ghanaian government is turning to liquefied natural gas (LNG) as an alternative fuel source. However, Ghana does not have the proper infrastructure to begin receiving LNG, and attempts to develop supply infrastructure have not been successful.

      Burning oil to produce electricity is normally a stupid way of producing electricity because the cost of electricity produced in this way is too high to be used in manufacturing goods for export. Ghana may think the price is satisfactory, if the only use for its electricity is a few light bulbs and televisions for the people of the country. Even a few hot plates might work. These things make citizens happier, but they do not pay back debt used to produce this high-priced electricity. Somehow, the country has to really produce more goods for export, or use the electricity in a way that produces more than “feel good” impacts.

      • Your last paragraph means nothing to (or is ignored by) anyone operating the economic levers inside Ghana, only makes sense to those on the outside.

        The important thing is to keep people happy around their TV sets, and to have electric light. No one wants to live in a hut with an animal fat candle.

        Electric light makes a ‘modern society’ and politicians can point to it being so. And of course they will be believed–the flickering TV is proof of it. So they will get voted into office again and continue looting the country.

        Until the country runs out of loot of course.

        It’s not too much of a stretch of the imagination to scale up Ghana’s situation to the western industrialised world. The same things seem to apply.

      • Robert Firth says:

        Ghana, like nearby Nigeria where I grew up, has no rain for six months of the year, sporadic rain for two, and heavy rain for four. Which makes hydropower a really bad idea.
        It is also tropical, which makes LNG a really bad idea also (the stuff boils unless kept very cold all the time, which itself takes massive amounts of energy).

        We got along OK without electricity for a couple of years, using oil lamps and playing bridge instead of watching television. But of course the received wisdom was that every “emergent” backwater had to industrialise, at a great cost in debt and an even greater cost in human misery.

        • Thanks for the additional information.

          Of course, it is not really possible to industrialize with very high cost electricity, which is what oil based electricity is, or renewables backed up with oil-based electricity is.

          When people hear that hydroelectric works in Norway, Switzerland, and the US State of Washington, they assume that hydroelectric works everywhere. It is even quite variable in these locations. These locations are better because they have water from snowmelt to somewhat smooth things out. Even these locations do not have as smooth production of electricity by month as many would assume. This is a chart I made of hydroelectric generation for the State of Washington by month.

          One of the reasons why hydroelectric is viewed so favorably by many researchers is the belief that EROEI is extremely meaningful. EROEI for hydroelectric is often given as 100:1. But a source of electricity that is only available four or six months of the year is not very valuable. It really needs fossil fuel backup equal to the amount needed year around. And somehow, it is necessary to ask workers to be available year around. Otherwise, they will likely other jobs, and not be around when they are needed. No one will want to train for the intermittent fossil fuel jobs. Hydroelectric will have similar problems, because of its intermittency. So the system as a whole becomes very high-cost with double the infrastructure and workers.

          • Yes, and there are also additional longer term cycle forcing on top of that graph (~2.5x swing), e.g. (mini) ice age etc. That’s why historically (even pre fossil fuels) some regions with good hydro power available (low tech mechanization) prospered for some time and (shockingly) not at all in other centuries etc.. It’s not basis for base load techno civilization (on the order of leverage from burning coal) otherwise it would had been obviously applied in the past.

          • OneOnOne says:

            Come on Gail, that is a shallow analysis.

            Of course the “free” energy stored in the dams will be used instead of burning fossil fuels. Ideally the dams should be almost empty when the snow melt or rainy season starts.

            On top of that the hydro power stations are absolutely essential for stabilizing the grid since they are dispatchable power which responds to various loads on the grid almost instantaneously.

            • The energy behind the dams is not free. Somehow, a system needs to be put in place to pay for the dams. They don’t grow on trees!! The dams are made with fossil fuels, particularly coal and oil. They also need to employ trained workers. If there are to be enough trained workers, the schools to teach the trained workers need to stay open. There needs to be a whole system that “works.”

              A hydroelectric system that works irregularly is especially at risk. For example, this is hydroelectric production in California on an annual basis.

              Clearly, California would need to save up a lot of water from year to year, if it were to even out production. Evaporation would be a problem, if nothing else. Even the state of Washington has a problem with variability on a month to month basis. Wind energy has tended to be very abundant at precisely the time snowmelt is filling the dams to overflowing. The utilities in the State of Washington have had to figure out which to give priority to. They don’t have any real option of storing up the snowmelt for several months, to even out the pattern. The extra water would overflow the dams.

              If there is nearby generation which can be ramped up and down (generally coal or natural gas), this can help provide the smooth 24/7/365 electricity generation pattern that industrial customers need. Residential customers can get some benefit from on-again-off-again supply. Televisions, for example, can run when the supply is on, as can electric light bulbs and recharging of cell phones. But industrial users have much more exacting requirements. The need a whole system that is on 24/7/365, and there needs to be be in place many other systems as well, such as paved roads. To pay for the system, customers need to be able to support an industrial system.

              What happens is that highly variable supply (wind and solar, and hydroelectric in parts of the world that have rainy and dry seasons) doesn’t work well enough for industrial producers. There cannot be a way to pay for what is essentially half of a system: The system needs a coal or gas system balanced with it, and these require a whole lot infrastructure (pipelines or LNG terminals for the gas). What is needed is a full double system, if hydro or wind or solar is too variable. This high cost is what makes the use of this electricity for industrial use not feasible. Any products made with this high-cost electricity would be too expensive to sell on the world market. They would be too expensive relative to workers wages.

              A recent McKinsey report analyzing the German electricity situation indicated that it was not working well at all. A big part of the problem was its very high cost. California’s costs also are very high, and it has a serious fire problem (from lack of maintained transmission lines). Venezuela depends heavily on long distance transmission of variable hydroelectric, and it too has had serious problems. Its loss of power seems to also be related to fires starting, where the grid upkeep has been neglected.

            • Kowalainen says:

              Once the investment have been done, as most dams in the west already were built in the early 19’th century the EROEI skyrockets towards the 100:1 range since minimal maintenance and additional infrastructure is required to keep them online, in comparison with say FF extraction and processing.

              Most dams in Sweden, for example, isn’t built from concrete, but rather from naturally occurring materials, such as moraine, stone and gravel.

              As far as California goes, it is important to evaluate the build up of the natgas/thermal baseload capacity on the grid before drawing too wide conclusions from the power output. The water level in the dams are more significant since it is a measurement of the energy available to be dispatched.

              Do not compare thermal and intermittent power with the supreme ruler of power generation – dispatchable power. Dispatchable power can cover for a power shortfall within seconds. The guide vanes are directly coupled to the feedback signal from the grid frequency. Once the frequency drops (a large power outage or increased current draw). The guide vane blades immediately opens up for more water to flow through and thus sending the power to the generators. No other power generation can match this immediate availability. None actually even comes close to gravity fed systems.

              Owning a hydro power station is an eternal gold mine.

            • I notice the slide you show says “The profit is made through the sale of energy and through the sale of renewable energy credits.” In fact, the renewable energy credits are emphasized. Sounds too good to be true!

              The big thing I have learned about hydroelectric in Spain is how unreliable it is. BP shows the last four years of production to be as follows (in terawatt hours). I remember hearing from someone who lives in Spain what an issue this is, from a backup generation planning point of view.

              2014 39.2
              2015 28.1
              2016 36.4
              2017 18.8
              2018 35.2

              I am doubtful that hydroelectric dams in Sweden are purely earthen. This article is called What are hydroelectric dams made of?

              The short answer: “These dams can be made of several different things but the primary building materials are: earth, concrete and steel.

              Earth

              Building a hydroelectric dams starts with a base. The base is the first thing to sit in the river channel and block the flow of water. The base is usually created by pouring tons and tons of rock, sand, gravel and dirt into the channel. It is the largest portion of the dam so an inexpensive material like rock and dirt helps keep the cost of building down while at the same time creating a very effective foundation from which to build the rest of the dam.

              Concrete

              The second material used in building a hydroelectric dam is concrete. Concrete is poured around the earthen base to provide shape, structure and strength to the dam. Concrete starts out in a near-liquid form which makes it very effective at modeling to specific shapes and then hardens and holds that shape. It is very strong which helps keep the dam standing.

              Steel

              Steel plays a critical part in most large-scale construction projects, and a hydroelectric dam is no different. Concrete is very strong in terms of compression strength but it is not very strong when it comes to twisting or pulling. This is where steel comes in. Steel re-bar is inserted into the concrete to provide added dimensional strength. If steel was not included in the concrete, the weight of the water pushing against the dam could easily break the concrete.

              There are certainly earthen dams in the United States, but the ones I have seen are not used for generating electricity. I cannot imagine one used for electricity generation that is made without steel and concrete, in addition to various forms of earth, in huge quantities.

            • Kowalainen says:

              Embankment dams are quite normal for hydro power plants all over the world. Concrete and steel is of course also used in limited amounts for various structures such as in the water ducts and other facilities where the machinery is located.

              https://en.wikipedia.org/wiki/Embankment_dam

              Hydro power plant owners are the main beneficiaries from the “green” scam, they can throttle their power plants however they wish on a second by second basis. They are the high frequency traders in the “renewable” energy industry.

              It goes something like this: Sell off all your shitty coal or natgas thermal plants, then sprinkle the landscape with plenty of subsidized+helicopter money wind turbines to distort the market and grid, couple those together with a few proper hydro power stations you already own. Intermittent wind for making the newly offloaded thermal plants run in constant sub optimal operating region and then make the profits using dispatchable power to cover for the shortage and gluts as the wind subsides/increases with the thermal plants lagging from minutes to hours behind the sudden changes in demand.

            • When I look at these embankment dams, the part I see in the photos is still concrete and steel. It looks like it is a matter of proportion of earth, concrete and steel.

  3. Harry McGibbs says:

    “World Bank President David Malpass said the global economy is poised to decelerate more than previously estimated, with the pile of negative-yielding debt indicating growth will be slower in the future.

    ““The slowdown in global growth is broad based,” Malpass said Tuesday in a speech in Washington. Recent developments signal the 2019 world expansion will likely to fall short of the lender’s June projection of 2.6% in real terms, Malpass said.”

    https://www.bloomberg.com/news/articles/2019-09-17/world-bank-chief-malpass-sees-steeper-global-growth-slowdown

    • Harry McGibbs says:

      “…extremely low interest rates may lead to slower growth by increasing market concentration. If this argument is correct, it implies that reducing interest rates further will not save the global economy from stagnation.

      “The traditional view holds that when long-term rates fall, the net present value of future cash flows increases, making it more attractive for firms to invest in productivity-enhancing technologies. Low interest rates therefore have an expansionary effect on the economy through stronger productivity growth.

      “But if low interest rates also have an opposite strategic effect, they reduce the incentive for firms to invest in boosting productivity. Moreover, as long-term real rates approach zero, this strategic contractionary effect dominates. So, in today’s low-interest-rate environment, a further decline in rates will most probably slow the economy by reducing productivity growth.”

      https://www.fnlondon.com/articles/more-rate-cuts-wont-save-the-economy-in-fact-theyre-making-it-worse-20190918

      • A situation when inflation-adjusted interest rates are zero or below is just bizarre. Investment really doesn’t make sense, except to try to prevent losing value more quickly.

        • Denial says:

          Yes but governments cannot operate with high interest rates because they are all carrying a high debt load. I guess the governments will be the investor of the future as they issue more debt.

      • Robert Firth says:

        “The traditional view holds that when long-term rates fall, the net present value of future cash flows increases, making it more attractive for firms to invest in productivity-enhancing technologies. Low interest rates therefore have an expansionary effect on the economy through stronger productivity growth.”

        Except that with lower interest rates, nobody is willing to lend them the money for that investment. Instead, they move to riskier, but possibly higher yielding, places to put their money. Back to real Classical Economics: the source of investment is savings; the source of savings is thrift; lower interest rates discourage thrifty investment and so, in the longer term, contract the economy.

        This tendency can be countered, for a time, by “free” debt; debt that everyone knows will covertly be repudiated. But at the end of the day the chickens come home. Or, as William Butler Yeats said: “At stroke of midnight God shall win”.

  4. Harry McGibbs says:

    “European car registrations dropped 8.6% in August as volume brands Nissan, Renault, Fiat and Volkswagen posted double-digit sales declines, according to industry data published on Wednesday… Registrations fell to 1.07 million cars last month from 1.17 million a year earlier across the European Union and EFTA countries, the Brussels-based association said in a statement.”

    https://uk.reuters.com/article/uk-europe-vehicleregistrations/european-passenger-car-registrations-slump-8-6-in-august-acea-idUKKBN1W30JA

  5. Harry McGibbs says:

    “Japan’s exports slipped for a ninth straight month in August as the Sino-U.S. tariff dispute hit demand from China and other Asian trading partners, heightening risks for the world’s third-largest economy.

    “The negative reading adds some pressure to the Bank of Japan to expand stimulus at its policy meeting on Thursday… Exports in August slumped 8.2% from a year earlier, Ministry of Finance data showed on Wednesday, dragged down by autos, car parts and semiconductor production equipment.”

    https://uk.reuters.com/article/us-japan-economy-trade/japans-exports-drop-for-ninth-straight-month-as-global-demand-falters-idUKKBN1W302P

  6. Harry McGibbs says:

    “Britons are £128 a year worse off on average than they were in 2008, according to a report that reveals household incomes were hit harder in the wake of the financial crash than official figures have revealed.”

    https://www.theguardian.com/business/2019/sep/17/britons-are-still-worse-off-than-in-2008-new-research-claims

    • Harry McGibbs says:

      “A record of number of Britons sought debt advice in the first half of 2019, and charities are warning that households are vulnerable to any future economic turbulence.”

      https://www.bloomberg.com/news/articles/2019-09-17/record-numbers-seek-debt-help-with-u-k-on-brink-of-brexit

      • Harry McGibbs says:

        “Britain’s household savings rate – a measure of how much households save from their disposable income – stands close to record low levels. Households have also been net borrowers for 10 quarters in a row, an unprecedented stretch in records dating back to the 1960s.

        “Their lack of financial headroom could spell trouble if a downturn hits, whether triggered by events at home or abroad.”

        https://uk.reuters.com/article/uk-britain-economy-recession-graphic/stretched-households-could-mean-lengthy-uk-downturn-if-it-comes-idUKKBN1W11FV

        • Harry McGibbs says:

          “Companies across Britain have begun stockpiling beer, wine and spirits to keep the alcohol flowing at Christmas as concerns grow that Brexit could disrupt supplies over the festive period.”

          https://www.theguardian.com/business/2019/sep/18/importers-stockpile-alcohol-for-christmas-to-avoid-brexit-drought

          • It seems like alcohol was an old way of storing up the calories of grain or grapes or potatoes, for winter or hard times. Little has changed!

            • Xabier says:

              Pigs were another store of the nutrition available from the growing season: one slaughtered in each month, November, December, January and February and the meat salted down after a good feast for everyone on pig-killing day. Poor people might have only one pig for the winter, richer farmers have four or more. Guess who survived best?
              Vegans might reflect on this old reality: grain storage alone was never enough to survive hard Northern winters. Not to mention the useful skins….

            • DJ says:

              I’ve never made potatoes last past january in a condition where I would like to eat them.

              Suppose the february pig could eat the february potatoes…

            • Robert Firth says:

              And I look forward to the day when English beer replaces airlines and motor cars as our key “industry”, and the Scots give up North Sea Oil for North Sea Whisky. And while I’m dreaming, let’s restore the House of Plantagenet.

        • It seems like the countries that were doing best before the last recession most likely had the highest saving rates. If this is the case, then it would not be surprising that they returned to their pre-collapse GDP’s soonest.

          I thought it was strange that the analysis excluded Greece and Italy. According to the note on the chart, these countries still haven’t returned to their pre-collapse GDP. Were they big savers, or were they already adding to their debt? We can’t tell from the analysis.

    • In the US, we know that wages rise less rapidly than GDP. In fact, we would expect that to be the case everywhere, because increasing complexity means that government programs keep growing, and businesses keep absorbing more of the total. The wages that have been increasing are often those of managers and of highly paid technical specialists.

      For this reason, an analysis based on GDP per capita would almost certainly understate how well individuals are doing, as this article claims is true in Briton.

  7. It's different this time around....YES says:

    Heh, heh, heh….
    Every U.S. Grid Is Getting Greener, Except the One That Matters
    (Bloomberg) — Every major U.S. electricity grid is getting greener.
    Except for the massive one serving 65 million Americans.
    That’s just as problematic as it sounds for the policymakers, power providers and climate activists looking to wean Americans off fossil fuels. While members of other systems move quickly to add solar and wind to their mixes and slash carbon emissions, the network that keeps the lights on from Chicago to Washington has effectively doubled down on natural gas
    In the past two years, it has boosted the amount of power generated with gas by 11,131 megawatts. And developers are planning 34,507 megawatts more.
    “How do you manage the gas build-out with more states boosting renewables targets?” asked Toby Shea, a New York-based analyst at Moody’s Investors Service. “There’s already an overbuild of gas.
    https://finance.yahoo.com/news/every-u-grid-getting-greener-100015635.html

    But, but, we are going in the right direction….sarcasm…..

    All talk and just plain crazy

  8. Yoshua says:

    Another article about the Repo. I can’t say I understand everything in this article. But it says that the Repo is the lender of last resort for global banks. The banks need collateral to use the Repo. U.S treasuries are the finest collateral.

    But the banks also use other collateral, like German Bunds, corporate bonds, junk bonds.

    In 2008 the banks used mortgage back securities as collateral…until the subprime blew up. That froze the Repo market.

    So what is going south now?

    https://www.alhambrapartners.com/2019/09/17/nasty-number-four-repo-chaos-taf-makes-a-comeback-and-eff-shows-us-how-inept-officials-really-are/

    • One of the things of note in the repo article:

      . . . the Fed is doing a limited and non-specific overnight repo operation. Hardly the kind of thing which fits the bigger picture. The rest of the world is desperate for dollar funding, and the central bank steps in to do as little as possible; not because it doesn’t care about any of these things, rather because it has no real idea what is actually going on.

      Not exactly a ringing endorsement of the Fed.

    • Christopher says:

      Seems like it was Saudi arabia that was pulling money from the markets. I wonder why they didn’t coordinate these withdrawals better with the markets? Is it some kind of threat ?

  9. MG says:

    Bovine spongiform encephalopathy (BSE) prevention and Alzheimer´s disease (AD) connections? 33rd WVC in Incheon- Seoul, 2017. E-poster 196 BM- 0356.

    “Purpose From the literature it is known that in British cows at 80s a higher incidence of subclinical (chronic), hypomagnesaemia was found and a new BSE disease appeared. After 1993 began to significantly reduce the incidence of the BSE. The aim of this study was to determine what changes in the period about 1985- 1995 (magnesium content in feed concentrates) have occurred in British cows, in this context. Materials and Methods In order to detect changes in the supply of magnesium in cows (1985-1995), in the form of mineral supplements, data from two British producers were examined. Results In the late of 80s were available only commercial Mg-blocks with very considerable variation in palatability, mostly very low Mg-intake. So usually the survey has been; the subclinical hypomagnesaemia was found in about 7-15 % of tested cows. Since the early 90s, it was in Britain gradually implemented, incorporating Mg in concentrates. To achieve the „extra dietary“ requirement level 30 g of daily Mg-intake with certainity, Mg was included in feed, thus not leaving any option to the dairy cow, about the Mg intake. In lactating cows at pasture, more palatable Mg-cobs were used. Subclinical/chronic hypomagnesaemia decreased to about 3-4 % in dairy cows. Conclusion Based on this interpretation ( BSE/Mg), should be similarly preventive do about the AD? Recent research has shown that increased magnesium (Mg) in the brain, prevents Alzheimer´s in mice. There the Mg acts as a „natural“ antagonist of NMDA receptors. In addition another, although „synthetic“ NMDA receptor antagonist (memantine) is a drug in AD. Keywords : Neurodegeneration , Magnesium deficiency , NMDA receptors , BSE in United Kingdom, Alzheimer´s Disease”

    https://www.researchgate.net/publication/322699401_Bovine_spongiform_encephalopathy_BSE_prevention_and_Alzheimers_disease_AD_connections_33rd_WVC_in_Incheon-_Seoul_2017_E-poster_196_BM-_0356

    • This looks like another reason to look for magnesium supplements.

      • MG says:

        I have found some other resources on the webpage of the given person – Josef Hlasny, DVM, PhD (http://www.bse-expert.cz/). It looks interesting, like this PDF:

        http://www.bse-expert.cz/pdf/Origin_BSE_TSE.pdf

        • MG says:

          “According to the BSE ammonia- magnesium theory , there the origin of BSE is a
          long-term high protein intake with the coincidence of dietary
          magnesium -deficiency. It seems that the same can be about the Alzheimer’s
          disease .”

          http://www.bse-expert.cz/pdf/Calcium_schizophrenia.pdf

          • This is long and somewhat over my head. One thing I did notice is

            “According to the BSE ammonia-magnesium theory, there the origin of BSE is along-term high protein intake with the coincidence of dietary magnesium-deficiency. It seems that the same can be about the Alzheimer’s disease.”

            I had heard earlier that India has a very low incidence of Alzheimers. Their diet is low meat, but they do eat some dairy. That combination seems to work.

            • naaccoach says:

              India also has the highest rate of diabetes, and a very high vegetable and grain intake. Much of their protein is of low biological availability to humans (soy, any beans, etc).

              The sword cuts both ways.

              Maybe best is eating nose to tail along with seasonal veggies and fruits. Get fatter in the fall and everything ripens to last throughout the winter. Kinda like the diet of most bears

        • It hadn’t occurred to me that high potassium and nitrogen fertilization, and lack of magnesium fertilization, might be creating the imbalance we are seeing today. Also, too much meat in the diet.

          • Well, it’s kind of intuitively self explanatory – the soil food web is fed industrial inputs on different than natural conditions (+ bad timing, temperature, moisture, dosage, ..). Hence the end product in meat must be also altered – defective.

            It’s also question of intersecting quality and quantity.
            So, imagine having two comparable samples of population. One is going to be fed meet with high %share of junk fillers ala fastfood grade meat and the other is going to be high end luxury grade cold air finished grass fed meat.

            Both of the sample groups receives a lot of meat each say >100kg per year.
            This first group dies much sooner on very nasty diseases, while the other yet still somewhat obese marches much longer. So, it’s not quantity question only..

            So to trivialize it, quality diet and self restrain gives you 85-110yrs longevity potential.
            And for garbage and high volume intake consumption combo subtract 20-30yrs or more..

            • MG says:

              “However, rainfall and the available water capacity of the soil are major yield
              determinants, with output in the U.K., for example ranging from 6000- 14000 kg DM/ha
              under intensive fertilization.”

              “More than one third of the BSE cases was found in Galicia… This province covers only 5.8 percent of Spain´s total surface and is located in Northwest Spain, with the 7.5 percent of the Spanish population. Annual mean temperatures vary from 8.3oC in the highest altitudes inland to 16oC in the southwestern coast. The average farm is very small with a total of 6.2 hectares made up of an average of 15.2 separate plots. Only 10.6 percent of the farms are over 10 ha. Annual rainfall varies between 700 to more than 2000 mm.”

              http://www.bse-expert.cz/pdf/Spain_and_BSE.pdf

              Too good conditions for agriculture create sooner depletion of crucial nutrients…

            • Right. And our fertilization only replaces some of them.

            • Yep, they most likely over stocked the farmland, it’s very easy in land locked areas with no serious attempt of setting aside, rotational grazing etc.. Not mentioning the area is probably under heavy farmland abuse for at least past ~3K yrs..

              Also the EU agri subsidies were likely blown on other tangential stuff instead (fancy diesel burning equipment, leased dual use/family cars, reconstruction of the buildings etc..) not on the “priority #1” that meaning adjustments of farming practices per given locale..

              So, the nature unhinged and simply fought back with the BSE..

            • https://link.springer.com/article/10.1007/s00267-015-0571-4

              This paper is on scavenging wolf pop in the area, but includes valuable numbers on livestock carcasses before and after BSE outbreak..

              So, what likely happened prior 2000 was overstocked depleted topsoil with too many livestock carcasses letting to rot there as per normal farming practice.. Not problem in healthy rich ecosystem (up to some animal density threshold), but disaster for depleted area..

              Hence the “bug” was not being naturally dealt with (transmuted) properly by the lush vegetation and microbe-fungi layer => so the cows in effect were eventually eating their unprocessed dead elders, lolz, yuck..

  10. Hubbs says:

    Speaking of encephalopathy, has Danielle Park been afflicted? Listen to what she says this about PV’s and EV cars……
    https://www.youtube.com/watch?v=5goTcil4FzU&t=1529s starting around 16:58

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