Expect low oil prices in 2020; tendency toward recession

Energy Forecast for 2020

Overall, I expect that oil and other commodity prices will remain low in 2020. These low oil prices will adversely affect oil production and several other parts of the economy. As a result, a strong tendency toward recession can be expected. The extent of recessionary influences will vary from country to country. Financial factors, not discussed in these forecasts, are likely also to play a role.

The following are pieces of my energy forecast for 2020:

[1] Oil prices can be expected to remain generally low in 2020. There may be an occasional spike to $80 or $90 per barrel, but average prices in 2020 are likely to be at or below the 2019 level. 

Figure 1. Average annual inflation-adjusted Brent equivalent oil prices in 2018 US$. 2018 and prior are as shown in BP’s 2019 Statistical Review of World Energy. Value for 2019 estimated by author based on EIA Brent daily oil prices and 2% expected inflation.

Figure 2 shows in more detail how peaks in oil prices have been falling since 2008. While it doesn’t include early January 2020 oil prices, even these prices would be below the dotted line.

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

Oil prices can temporarily spike because of inadequate supply or fear of war. However, to keep oil prices up, there needs to be an increase in “demand” for finished goods and services made with commodities. Workers need to be able to afford to purchase more goods such as new homes, cars, and cell phones. Governments need to be able to afford to purchase new goods such as paved roads and school buildings.

At this point, the world economy is struggling with a lack of affordability in finished goods and services. This lack of affordability is what causes oil and other commodity prices to tend to fall, rather than to rise. Lack of affordability comes when too many would-be buyers have low wages or no income at all. Wage disparity tends to rise with globalization. It also tends to rise with increased specialization. A few highly trained workers earn high wages, but many others are left with low wages or no job at all.

It is the fact that we do not have a way of making the affordability of finished goods rise that leads me to believe that oil prices will remain low. Raising minimum wages tends to encourage more mechanization of processes and thus tends to lower total employment. Interest rates cannot be brought much lower, nor can the terms of loans be extended much longer. If such changes were available, they would enhance affordability and thus help prevent low commodity prices and recession.

[2] World oil production seems likely to fall by 1% or more in 2020 because of low oil prices.

Quarterly oil production data of the US Energy Information Administration shows the following pattern:

Figure 3. Quarterly World Crude Oil and Natural Gas Liquids production, based on EIA international data through September 2019. This is a fairly broad definition of oil. It does not include biofuels because their production tends to be seasonal.

The highest single quarter of world oil production was the fourth quarter of 2018. Oil production has been falling since this peak quarter.

To examine what is happening, the production shown in Figure 3 can be divided into that by the United States, OPEC, and “All Other.”

Figure 4. Quarterly world crude oil and natural gas liquids production by part of the world, based on international data of the US Energy Information Agency through September 30, 2019.

Figure 4 shows that the production of All Other seems to be steady to slightly rising, more or less regardless of oil prices.

OPEC’s oil production bobs up and down. In general, its production is lower when oil prices are low, and higher when oil prices are high. (This shouldn’t be a surprise.) Recently, its production has been lower in response to low prices. Effective January 1, 2020, OPEC plans to reduce its production by another 500,000 barrels per day.

Figure 4 shows that oil production of the United States rose in response to high prices in the 2010 to 2013 period. It dipped in response to low oil prices in 2015 and 2016. When oil prices rose in 2017 and 2018, its production again rose. Production in 2019 seems to have risen less rapidly. Recent monthly and weekly EIA data confirm the flatter US oil production growth pattern in 2019.

Putting the pieces together, I estimate that world oil production (including natural gas liquids) for 2019 will be about 0.5% lower than that of 2018. Since world population is rising by about 1.1% per year, per capita oil production is falling faster, about 1.6% per year.

A self-organizing networked economy seems to distribute oil shortages through lack of affordability. Thus, for example, they might be expected to affect the economy through lower auto sales and through less international trade related to automobile production. International trade, of course, requires the use of oil, since ships and airplanes use oil products for fuel.

If prices stay low in 2020, both the oil production of the United States and OPEC will likely be adversely affected, bringing 2020 oil production down even further. I would expect that even without a major recession, world oil supply might be expected to fall by 1% in 2020, relative to 2019. If a major recession occurs, oil prices could fall further (perhaps to $30 per barrel), and oil production would likely fall lower. Laid off workers don’t need to drive to work!

[3] In theory, the 2019 and 2020 decreases in world oil production might be the beginning of “world peak oil.” 

If oil prices cannot be brought back up again after 2020, world oil production is likely to drop precipitously. Even the “All Other” group in Figure 4 would be likely to reduce their production, if there is no chance of making a profit.

The big question is whether the affordability of finished goods and services can be raised in the future. Such an increase would tend to raise the price of all commodities, including oil.

[4] The implosion of the recycling business is part of what is causing today’s low oil prices. The effects of the recycling implosion can be expected to continue into 2020.

With the rise in oil prices in the 2002-2008 period, there came the opportunity for a new growth industry: recycling. Unfortunately, as oil prices started to fall from their lofty heights, the business model behind recycling started to make less and less sense. Effective January 1, 2018, China stopped nearly all of its paper and plastic recycling. Other Asian nations, including India, have been following suit.

When recycling efforts were reduced, many people working in the recycling industry lost their jobs. By coincidence or not, auto purchases in China began to fall at exactly the same time as recycling stopped. Of course, when fewer automobiles are sold, demand for oil to make and operate automobiles tends to fall. This has been part of what is pushing world oil prices down.

Sending materials to Asia for recycling made economic sense when oil prices were high. Once prices dropped, China was faced with dismantling a fairly large, no longer economic, industry. Other countries have followed suit, and their automobile sales have also fallen.

Companies operating ships that transport manufactured goods to high income countries were adversely affected by the loss of recycling. When material for recycling was available, it could be used to fill otherwise-empty containers returning from high income countries. Fees for transporting materials to be recycled indirectly made the cost of shipping goods manufactured in China and India a little lower than they otherwise would be, if containers needed to be shipped back empty. All of these effects have helped reduce demand for oil. Indirectly, these effects tend to reduce oil prices.

The recycling industry has not yet shrunk back to the size that the economics would suggest is needed if oil prices remain low. There may be a few kinds of recycling that work (well sorted materials, recycled near where the materials have been gathered, for example), but it probably does not make sense to send separate trucks through neighborhoods to pick up poorly sorted materials. Some materials may better be burned or placed in landfills.

We are not yet through winding down the recycling effort. Even the recycling of materials such as aluminum cans is affected by oil prices. A March, 2019, WSJ article talks about a “glut of used cans” because some markets now prefer to use newly produced aluminum.

[5] The growth of the electric car industry can be expected to slow substantially in 2020, as it becomes increasingly apparent that oil prices are likely to stay low for a long period. 

Electric cars are expensive in two ways:

  1. In building the cars initially, and
  2. In building and maintaining all of the charging stations required if more than a few elite workers with charging facilities in their garages are to use the vehicles.

Once it is clear that oil prices cannot rise indefinitely, the need for all of the extra costs of electric vehicles becomes very iffy. In light of the changing view of the economics of the situation, China has discontinued its electric vehicle (EV) subsidies, as of January 1, 2020. Prior to the change, China was the world’s largest seller of electric vehicles. Year over year EV sales in China dropped by 45.6% in October 2019 and 45.7% in November 2019. The big drop in China’s EV sales has had a follow-on effect of sharply lower lithium prices.

In the US, Tesla has recently been the largest seller of EVs. The subsidy for the Tesla is disappearing in 2020 because it has sold over 200,000 vehicles. This is likely to adversely affect the growth of EV sales in the US in 2020.

The area of the world that seems to have a significant chance of a major uptick in EV sales in 2020 is Europe. This increase is possible because governments there are still giving sizable subsidies to buyers of such cars. If, in future years, these subsidies become too great a burden for European governments, EV sales are likely to lag there as well.

[6] Oceangoing ships are required to use fuels that cause less pollution as of January 2020. This change will have a positive environmental impact, but it will lead to additional costs which are impossible to pass on to buyers of shipping services. The net impact will be to push the world economy in the direction of recession.

If oceangoing ships use less polluting fuels, this will raise costs somewhere along the line. In the simplest cases, oceangoing vessels will purchase diesel fuel rather than lower, more polluting, grades of fuel. Refineries will need to charge more for the diesel fuel, if they are to cover the cost of removing sulfur and other pollutants.

The “catch” is that the buyers of finished goods and services cannot really afford more expensive finished goods. They cut back in their demand for automobiles, homes, cell phones and paved roads if oil prices rise. This reduction in demand is what pushes commodity prices, including oil prices, down.

Evidence that ship owners cannot really pass the higher refining costs along comes from the fact that the prices that shippers are able to charge for shipping seems to be falling, rather than rising. One January article says, “The Baltic Exchange’s main sea freight index touched its lowest level in eight months on Friday, weighed down by weak demand across all segments. . .The Index posted its biggest one day percentage drop since January 2014, in the previous session.”

So higher costs for shippers have been greeted by lower prices for the cost of shipping. It will partly be ship owners who suffer from the lower sales margin. They will operate fewer ships and lay off workers. But part of the problem will be passed on to the rest of the economy, pushing it toward recession and lower oil prices.

[7] Expect increasingly warlike behavior by governments in 2020, for the primary purpose of increasing oil prices.

Oil producers around the world need higher prices than recently have been available. This is why the US seems to be tapering its growth in shale oil production. Middle Eastern countries need higher oil prices in order to be able to collect enough taxes on oil revenue to provide jobs and to subsidize food purchases for citizens.

With the US, as well as Middle Eastern countries, wanting higher oil prices, it is no wonder that warlike behavior takes place. If, somehow, a country can get control of more oil, that is simply an added benefit.

[8] The year 2020 is likely to bring transmission line concerns to the wind and solar industries. In some areas, this will lead to cutbacks in added wind and solar.

A recent industry news item was titled Renewables ‘hit a wall’ in saturated Upper Midwest grid. Most of the material that is published regarding the cost of wind and solar omits the cost of new transmission lines to support wind and solar. In some cases, additional transmission lines are not really required for the first additions of wind and solar generation; it is only when more wind and solar are added that it becomes a problem. The linked article talks about projects being withdrawn until new transmission lines can be added in an area that includes Minnesota, Iowa, parts of the Dakotas and western Wisconsin. Adding transmission lines may take several years.

A related issue that has come up recently is the awareness that, at least in dry areas, transmission lines cause fires. Getting permission to site new transmission lines has been a longstanding problem. When the problem of fires is added to the list of concerns, delays in getting the approval of new transmission lines are likely to be longer, and the cost of new transmission lines is likely to rise higher.

The overlooked transmission line issue, once it is understood, is likely to reduce the interest in replacing other generation with wind and solar.

[9] Countries that are exporters of crude oil are likely to find themselves in increasingly dire financial straits in 2020, as oil prices stay low for longer. Rebellions may arise. Governments may even be overthrown.

Oil exporters often obtain the vast majority of their revenue from the taxation of receipts related to oil exports. If prices stay low in 2020, exporters will find their tax revenues inadequate to maintain current programs for the welfare of their people, such as programs providing jobs and food subsidies. Some of this lost revenue may be offset by increased borrowing. In many cases, programs will need to be cut back. Needless to say, cutbacks are likely to lead to unhappiness and rebellions by citizens.

The problem of rebellions and overthrown governments also can be expected to occur when exporters of other commodities find their prices too low. An example is Chile, an exporter of copper and lithium. Both of these products have recently suffered from low export prices. These low prices no doubt play a major part in the protests taking place in Chile. If more tax revenue from the sales of exports were available, there would be no difficulty in satisfying protesters’ demands related to poverty, inequality, and an overly high cost of living.

We can expect more of these kinds of rebellions and uprisings, the longer oil and other commodity prices stay too low for commodity producers.

Conclusion

I have not tried to tell the whole economic story for 2020; even the energy portion is concerning. A networked self-organizing system, such as the world economy, operates in ways that are far different from what simple “common sense” would suggest. Things that seem to be wonderful in the eyes of consumers, such as low oil prices and low commodity prices, may have dark sides that are recessionary in nature. Producers need high prices to produce commodities, but these high commodity prices lead to finished goods and services that are too expensive for many consumers to afford.

There probably cannot be a “one-size-fits-all” forecast for the world economy. Some parts of the world will likely fare better than others. It is possible that a collapse of one or more parts of the world economy will allow other parts to continue. Such a situation occurred in 1991, when the central government of the Soviet Union collapsed after an extended period of low oil prices.

It is easy to think that the future is entirely bleak, but we cannot entirely understand the workings of a self-organizing networked economy. The economy tends to have more redundancy than we would expect. Furthermore, things that seem to be terrible often do not turn out as badly as expected. Things that seem to be wonderful often do not turn out as favorably as expected. Thus, we really don’t know what the future holds. We need to keep watching the signs and adjust our views as more information unfolds.

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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1,162 Responses to Expect low oil prices in 2020; tendency toward recession

  1. Jan says:

    EU commission to invest 1.000.000.000.000 EURs (1 German Billion = 1.000 US billion) into sustainable energy until 2030. First focus: Subventions for regions stopping coal electrification (Poland). The money should be raised by unclear mechanisms from private and public sources. More to be published in the near future. Objective is climate neutrality until 2050.

    https://www.spiegel.de/politik/ausland/green-deal-der-eu-ursula-von-der-leyen-und-ihr-billionen-versprechen-a-da790e50-2c7d-4223-bb26-bec41cb8e450

    Climate neutrality means obviously not to rely on fossile fuels at all.

      • Or clever scheme how to play for time..
        Basically, along the lines of attempted making a smaller batch, self imposed austerity etc.. Could very theoretically work for few more decades with diligent planning and tightly controlled levers on power, obviously unless the %pop gets restless first and kicks the table upside down, e.g. extrapolating French beyond today ~calm protest scenario.. and or other intervening civilization on natural derailment.

    • Rodster says:

      “Climate neutrality means obviously not to rely on fossile fuels at all.”

      Not gonna happen for two important reasons !

      1) The world is up to it’s eyeballs and drowning in debt.
      2) There aren’t enough natural resources on this planet to switch from fossil fuels to alternative energy, not with a population of 7.8B humans and that number keeps growing.

    • DJ says:

      I would have guessed climate neutrality is another word for co2 neutrality, that is deducting some make believe negative emissions from co2 emissions.

      If they spend much money they could probably invent lots of negative emissions.

  2. Denial says:

    I am an electrician by trade and it always amazes me that when I turn someone’s power off they still go around and try and turn on lights etc….
    The same holds true for this idea of “crash light idea”….when things go all things will go….social security, 401 k , pensions,….etc….As I used to argue on the oil drum 15 years ago there will be no real place to hide….I hear so many comments like I am going to sit back and watch and eat my popcorn; as if they will not be affected! Reminds me of when the wealthy went to watch the the first civil war battle and have a picnic as it was going to be over in a few hours…they came away shocked and repulsed!

    • It is not clear that people understand where electricity comes from and the amount of effort that goes into providing the level supply that we need.

      People also don’t understand how important it is that electricity is inexpensive. If it is expensive, everything that is made with electricity will also be expensive.

      • Tim Groves says:

        This morning I got up early, bunged a basketful of dirty clothes and towels into the washing machine, added some magic liquid, and selected the Hurry wash function.

        Then I made and ate breakfast, read the newspaper headlines, and by the time I was finished, the clothes were washed, rinsed and spun dry.

        I remember over half a century ago in the good ole days my mother and my grandmother washing and rinsing everything by hand and then wringing it through the mangle. Talk about drudgery! Housewives back then were full-time labourers. These days, thanks to miracle of electricity and the wonders of home appliance technology, it’s so easy that even a man can do it!

        Maintaining cheap and stable electricity may be a challenge, but if we don’t want to go through collapse, it’s one of those challenges we had better not fail at.

        If I ruled the world, I would organize a huge climate/global environmental conference on an island either off the cost of British Columbia or else in the Hebrides—somewhere not too cold, not too hot, and not too easy to escape from. When the delegates had all arrived, I would announce that they would be staying for a year and that they would have to do without electricity or fossil fuels. Not being a cruel man, I would provide a supply of plastic bowls and scrubbing boards. And I would tell them that they were pioneers who were beta-testing the new economy that they were advocating for everyone else.

        If I ran on that platform, I’m confident the entire world would vote for me!

        • I found this chart from an academic paper showing the results of a 2016 survey of washing methods around the world.

          A note says that the only African countries included are Egypt, Morocco, and South Africa. I suspect that India and Bangladesh were not weighted very heavily in the Asia-Pacific data either. I expect that a significant percentage of today’s world population hand washes its clothes, sometimes in nearby streams. Running water is a luxury of developed countries.

          • Robert Firth says:

            Gail, how “developed” do you have to be to have running water? The ancient Hebrews had running water. So did the Minoans. The citizens of Machu Picchu irrigated their terraces and furnished their homes with continuously running water. It’s not that hard: just build your settlements near running rivers or streams and let gravity do the rest.

            • I can get enough water collected off my roof to satisfy my basic needs.

              clothes might get a bit smelly, but as in past times, if everybody smells alike, who will notice

              it’s not getting hold of water that’s the problem, it’s getting rid of what comes out the other end that’s the problem.

              Those living upstream will dump their effluent on those living downstream

              it’s called ‘letting gravity do the rest.’

            • I think that the issue is mostly either (a) water too far from population centers or (b) not enough fresh water to distribute by pipeline, except for short periods, at designated central distribution areas.

              Both Africa and India are known for women walking around with jars of water on tops of their heads. I took this photo in India:

              I know that in Africa, one issue in educating girls is freeing the girls from the task of hauling water from the nearest stream or functioning water pump, which is often two or three miles away.

              This is an NPR story called Millions of Women Take a Long Walk with a 40-Pound Water Can.

              Before setting off, a woman must figure out which pump she can visit to actually acquire water on that particular day, Crow says. There are seasonal shortages and rations that may complicate this decision — and lengthen the trip.

              Once a woman gets to a water source, she can expect to spend even more time waiting in line. When there’s just a single hand pump, progress is slow.

              Depending on the size of the family and the household’s needs — like laundry, for instance — women may make this trip multiple times on the same day. If water is available only during a certain window, “they rush, and can’t pace,” Geere says.

            • Robert Firth says:

              For Norman: Your comment seems to me a very “western” view of the matter. Most sustainable societies channelled their waste water into simple purification systems, usually biologically based. At Machu Picchu, the people lived on the top of the hill; their effluent flowed down the agricultural terraces, which removed the contaminants (mostly human and kitchen waste). Yes, I’ve been there.

              In Edo Japan, the same role was usually played by rice paddies, where the ducks and the carp helped dispose of some waste; the rest helped the rice grow. And houses without running water had their waste removed by hand.

              In Rome, the sewage system was used almost entirely by the baths and other public works; human waste was usually sequestered and dealt with separately. This system began to fail in later years as the city population expanded, but the original design was sound.

              We forget that, before the Industrial Revolution, almost all pollution was biological in origin, and could be dealt with by natural systems if they were well designed and tended.

            • I think you dealt with the question yourself:

              The system stopped working after the population expanded.

              In London and other cities, “night soil” was removed by men with carts, and taken out to surrounding fields which supplied food back to the city itself

              No doubt you’ve read about the ‘great stink of the mid 1800s

            • Robert Firth says:

              For Norman:

              You say: “The system stopped working after the population expanded.”

              A comment with which I agree without reservation. And thank you for a most thought provoking and informative exchange.

            • yes I too enjoy being forced to stop and think things through in here and debate conclusions

            • doomphd says:

              when visiting Germany in the late 1980s to early 1990s, the train routes all smelled of urine, because it was being dumped from the trains in route. they were all using humane manure on some of the crop fields. it has a certain pungent odor, even if somewhat composted.

            • John Doyle says:

              Switzerland too recycled all their cattle waste [+?] into a very smelly “soup” they sprayed on their fields. I never saw that happening in Italy even though they kept all the waste straw from the fattorie, and spread it around. Here in Aus where we don’t have sheds for winter quarters for animals we have dung beetles, and superphosphate.

        • Jan says:

          You can do without a washing machine easily. Use warm water, detergeant and a brush. It is hard work to do bed sheets and towel or jeans for the family, though. You can leach wood ash in water to get a mild alkaline solution after filtration. Boiling and vaporizing the filtrate you get potassium carbornate. The early glassmakers used this. Drop a strong solution into 60°C fat and get a soft yellow soap. No deal. Use wood ash directly to clean dishes or desinfect rooms. Much more difficult to grow linseed (flax) to make fabrics and clothes. What is more the kids grow every second. Guess thats why Romans and Indians just wrapped the cloth around, one has to be clever!

        • Artleads says:

          wITH ALL THOSE LABOR SAVING DEVICES PEOPLE STILL FIND A WAY TO BE UNHAPPY.

        • Dennis L. says:

          Yes, the time constraint, modern conveniences are wonderful time savers.

          Notice how neatly these women are dressed, most have aprons, their hair is well done, they are standing on a duck board to soften what I assume is a concrete floor behind them and there are perhaps two pipes along the wall one for hot, one for cold?
          Note also that while they are not model thin, they are basically of a healthy weight. This is what I see so often in what I assume is a WPA photo, the people were neat, they are proud, their clothes are clean even though they are poor and these women are dressed in a modest manner, they look like the mom’s next door in my youth.

          There is good evidence that modern, social media is driving kids nuts, especially girls who have experienced a 100% plus increase in suicide rates since the social media craze.
          We are trying to live a Hollywood existence, air brushed, surgically modified, scripted which even for those living it seems to be a life or stress, divorce, drugs and when seen in actual photos of later life, man, they have been on a life of forty miles of hard road.

          So, what can we do? Turn off social media servers, use the money to update and maintain the grid as it exists, this in turn helps our mental health especially our young women, so it will get the feminist vote, updating the grid will put men to work, climbing a pole is hard and we can save petroleum by not using bucket trucks. At the same time there will be a few less billionaires, is that such a bad thing? Is this such a bad way down?

          Life is going to change and as you mentioned, some things are worth maintaining, it can be done. Homes can use less electricity without solar cells, etc., turn off the TV, get a book and read. Have some friends over and play a game. Somehow my parents did these things and mom still did the laundry albeit with a wringer machine, two tubs and an environmentally friendly clothes line – humidified the house once a week in the winter.
          Water, have more than one person use the tub, sequentially, or together. No, it does not all have to be sexual, sometimes it is a bath. We did this when I was a child, the toilet was not always flushed after peeing, my parents saved money, one dollar or dime at a time. I was wealthy fashionable, my jeans were patched and did not have the holes and tears so common today.

          Even with the challenges before us, we have it good, life is good; betting on all the disasters and vicariously participating in them by putting in a supply of popcorn is not a very positive way to live one’s life.

          I remain an optimist, there will be a tomorrow and it can be a good tomorrow. We can adapt, my greater concern is that we do adapt, we socially need eachother and somehow have to come to a more realistic view of the world and our place in it, accepting it and finding some happiness in what is our only life, this one.

          Dennis L.

          • Artleads says:

            Well said. But I may be too far gone into individualism and privacy-fetish to endorse some of these communal measures (although they very significantly describe my own upbringing). I recommend small cheap (or even free) housing, but each unit having its own compost toilet that empties elsewhere than into over-full sewerage systems. Ubiquitous rain catchment of course (although that won’t be enough in many places).

    • Davidinamonthorayearoradecade says:

      “As I used to argue on the oil drum 15 years ago there will be no real place to hide….”

      wow…

      I agree… yes yes yes yes yes…

      by the year 2035, there will be no real place to hide…

  3. goss says:

    20 years ago we were talking about transmission line contraints with wind in the ‘north. The puc knew of this issue 20 years ago. Our mennonite/amish communities have invested heavily in wind power – grid connected and were investing back then too. Now we have xcel building out a fair bit of wind.

    I told them 20 years ago to locate their data centers next to the wind farm and run fiber wherever the data needs to go. Permitting for internet fiber is wham bam thank-you maam. A non issue. Guess what google is finally doing? Oh look, a data center, right next to the wind. Go figure.

    • The only catch is that wind is not really steady enough to provide the kind of electricity that a data center needs. The wind must be balanced with other fossil fuel electricity. It also need long distance transmission lines to get it population centers.

      In far too many cases, those supposedly buying wind power were really buying stabilized power that was partly from wind, at a cost far below its cost of production. Other customers were, in effect, subsidizing the price of these big buyers electricity. Also, the tax structure is providing huge credits for wind energy.

      One of the things that got left out of cost estimates was the cost of adding sufficient transmission lines. Now this is becoming a problem in one part of the Upper Midwest. It means that the amount of wind that will be added will likely drop way back for a while (even with subsidies) until more transmission is added. This may take a few years. I remember seeing 2024 mentioned in one write-up.

    • cashisking says:

      How many calories does data have per serving? Good recipes?

      • We know that there are bacteria that live on electricity for food. Data storage preparation and storage requires energy, especially electricity. This electricity, at least for microbes, seems to have calories.

        • Robert Firth says:

          Bacteria that live on electricity? So the greenies who want to decarbonise the world will deprive them of their food? Bacteria killers! Have you no shame?!

          The natural world is a seamless web, and one that we humans seem to be intent on unravelling, whatever political stance we adopt.

          “From Nature’s chain whatever link you strike,
          Tenth, or ten thousandth, breaks the chain alike”

    • Jan says:

      Those are great ideas to reduce our energy consumption. But semi-conductor technology is hard to maintain in an agrarian culture close to the middle ages or the bronze age. If you find a way how to produce its components in little quantities in unequipped alchemist labs without products from the chemical industry – that would be something. Glas is hard to make without fossiles, they burnt half of the European forests for some cathedral windows. I cannot believe this technology can remain in a system of reduces complexity.

      • Xabier says:

        This is being discussed on Dr Tim Morgan’s blog.

        Our communications systems are the most complex ever devised, and how they can survive ‘de-complexifying’ beyond a certain point is a mystery.

        Telepathy might be the future, I suppose? 🙂

        • oil free construction, ultimate energy saving

        • I wonder how our fire prevention and fire extinguishing capability will survive de-complexification. Expect buildings made of wood to burn down frequently.

          • Artleads says:

            I don’t think sprinklers in each wooden house is excessively complex. No doubt, a governance system that orders sprinklers at scale could afford to have ubiquitous wooden house sprinklers. That doesn’t happen now. Wooden houses don’t keep in the summer heat like concrete. It’s easier to forego AC in a wooden house. Concrete uses tons of energy to create, and wipes out mountain ranges. Wooden houses have important aesthetic qualities for a species that doesn’t live by bread alone. Charring wood prior to building with it keeps it from burning. Wooden houses are important to promote and value. Putting wooden houses down is unnecessary, and makes about as much sense as putting down fossil fuels and advocating for a switch to renewables.

          • Artleads: Pipes to carry water are pretty much too complex, so sprinklers are as well. The system becomes much less complex, if we are not using fossil fuels.

            • Artleads says:

              Sorry, I get confused as to when we’re talking about somehow being in a sharply contracting and unequal economic environment (that still runs on fossil fuels) , and when we’re talking about a world without fossil fuels altogether (which I’ve been thinking is impossible).

        • This is a link to the post on Dr. Tim Morgan’s blog. https://surplusenergyeconomics.wordpress.com/2020/01/13/162-the-business-of-de-growth/

          Near the beginning he says,

          In reality, though, both de-growth and de-layering offer opportunities as well as challenges. The trick is to know which is which.

          I can see that new small local companies might do better than global conglomerates, but apart from this, I think that de-growth and de-layering are mostly out of our hands.

          Then he says:

          How, then, are businesses likely to position themselves for the onset of de-growth? The answer begins with the recognition of two realities.

          The first of these is that prosperity is deteriorating, and that there is no ‘fix’ for this situation.

          The second is that ‘price isn’t value’.

          I very much agree with both of these statements.

          Dr. Tim has nice charts by country showing how discretionary income keeps falling. If required education and required medical care, keep rising, as does the share of GDP that needs to be paid to seniors as Social Security (or a similar benefit), it is pretty much a no-brainer that what is left over for raising a family and other discretionary pursuits has to keep falling.

          Dr. Tim’s big point with respect to ‘price isn’t value’ is that prices of shares of stock and of homes can rise far beyond their value, as determined by future income streams (dividend or profit streams). This is certainly true as well.

          Dr. Tim doesn’t seem to figure out that the price of commodities can fall far below their cost of production, as well. He also doesn’t mention the huge debt collapse problem that occurs if stock market and home prices fall.

          Near the end, he says, “Ultimately, the aim is likely to be to front-run both de-layering and revaluation.”

          New small businesses, growing where there are low or no minimum wages would seem to work, as long as collapsing asset prices don’t bring down the financial system, and as long as low oil prices don’t lead to the downfall of oil exporting countries.

          • The threats posed by sudden “de-layering and revaluation” are taken very seriously by the BAU / legacy system owners. Hence it will “sort of continue to work” till the very last possible moment, unknown from our vantage point. We can merely guesstimate from the ricocheting side effects about the true progress of this overall process (and its various sub kernels) so far..

        • Robert Firth says:

          Xabier, the Inca solved that problem over a thousand years ago, as I saw for myself in Peru. They built heliograph towers. Not quite as fast as email, but fast enough to run an empire that stretched halfway down the Andes.

          • DB says:

            Robert, do you have more information about the Incan system? I couldn’t find anything on it, although the Incas of course had an extensive road network used by running messengers.

            There also were optical, non-electric telegraph systems in parts of Europe in the decades before the electrical telegraph: https://www.lowtechmagazine.com/2007/12/email-in-the-18.html.

            • Robert Firth says:

              DB, it was up on he Altiplano, on one of the Inca trails. There was a native guide. Along the way, I saw a tower: quite tall, slightly sloped (think of the frustrum of a thin cone). A door at the bottom, and two windows in the top, facing in different directions.

              That rang a bell, so I looked around, and, sure enough, there were two other towers in line of sight, exactly corresponding to the aspect of the windows, and with windows of their own. Nobody else was showing much interest, so I said to the guide “This is a heliograph tower”. He smiled and nodded. I continued: “But how could the Inca send messages when they had no writing?” He smiled again, but with a smile that said “I know something you don’t”.

              Well, that was many years ago, and today most archaeologists agree that the Inca did have writing, but it was kept a secret by the authorities. Perhaps because fast communications were a military secret? My guess only. There are surviving quipu that are very complex, using colours, different kinds of spacing, different knots. Information theory will tell you one quipu can easily convey a bill of lading or a tactical military plan.

              Map the contents of the quipu into something like the instructions for a knitting pattern, send the result as flashes of light, and you have the answer.

            • DB says:

              Thank you, Robert.

    • The article talks about how the aging infrastructure can be expected to start many fires in the years ahead, if the power isn’t cut off to many consumers, under perhaps any foreseeable circumstances.

      I think the think that people lose sight of is that fire is a very normal activity in forests, especially dry forest. Fires are to be expected. It is only because of fire suppression techniques that we have managed to have fairly low levels of fires in recent years. Some kinds of seeds do not germinate without exposure to smoke.

      The US National Interagency Fire Center has a registry of acres of wild land fires burned going back to 1926. Information at the top of the chart says that reporting isn’t the same as in the past. We also know that fire suppression efforts are much higher today than they were in early years.

      The of acres burned can be found at this link:
      https://www.nifc.gov/fireInfo/fireInfo_stats_totalFires.html

      The number of acres burned exceeded 20 million for every year from 1929 to 1943. In fact, the acres burned was reported as 52,266,000 in 1930. Recent acres burned are far lower. There are some years with less than 2 million acres burned. The year 2017 is the highest recent year shown, with 10 million acres burned and 2018 had 8.8 million acres burned.

      If we cut back fossil fuel use, we cut back our ability to suppress forest fires. We will need to expect more forest fires (and thus damage to transmission equipment), even if the fires are “only” caused by lightning and other natural events.

  4. Dennis L. says:

    More on solar, a local, landowner’s point of view.

    I am familiar with this area having driven 61 many times during my 30 years in the Quad Cities, it is beautiful, the land is not easy to farm. Moneywise, as long as they utility can pay, the rent offered per acre/per year is approximately 4 times its rental rate to a farmer based on what was solicited for my land. Taking that much land out of production would seemingly decrease the amount of land available for farming and either cause some farmers to quit or increase the rents paid for the remaining land. It is a challenge to farm without land.

    NEE is a very good stock, good dividend, good appreciation, known for using tax credits and expanding in renewable energy. What’s not to like?

    Dennis L.

    • Looking up “Pelosi Wisconsin Solar farm,” I see that this debate seems to have begun in mid-2018. In the words of one farmer,

      “I feel like this is taking the best, most fertile land in Wisconsin out of production,” said resident Jean Slapak, in a public comment. “I am in favor of solar and wind, but put solar panels in the desert, where they are not using fertile land.”

      Another concern:

      “How will rainwater and melted snow runoff impact our well-water system and that of our community? What herbicides truly will be used to spray around the hundreds of thousands of solar panels? In addition, what is the impact of winter weather or a large storm on a project of this magnitude?”

      One of the things that is needed for this solar farm is adequate transmission to take the electricity away. The proposed solar farm is near the proposed Cardinal Hickory Creek transmission line. According to this article, the $492 million project will be cost-shared among MISO users (a subsidy to the solar and wind it is helping). It doesn’t sound entirely like a done deal yet:

      Project partners ATC, ITC Midwest and Dairyland Power Cooperative will begin contacting Wisconsin property owners along the PSC-selected route beginning this fall. If approval is granted by the Iowa Utilities Board and three federal agencies next year, construction will begin in 2021 to meet an in-service date of 2023.

      It mostly uses the right of way of existing transmission lines, so it has a better chance than many transmission lines of going through fairly quickly.

      • Dennis L. says:

        Very nice research, this is relevant to me as Dairyland is the power provider for the cooperative utility based in Rushford.
        “The approximately 100-mile line, which will electrically connect the Dane County, Wisconsin, region to the Dubuque County, Iowa region, will help improve access to lower-cost power and renewable energy.”
        I note that “lower-cost power” does not necessarily imply renewable energy will be lower cost, were this to be it would be a trendsetter. Unfortunately I also own utility providers at either end of this line so I suppose profits will decline as costs increase, these utilities have been very well run over the years. Something about the road to hell being paved with good intentions.

        Dennis L.

  5. cashisking says:

    Good news food is infinite!
    Seriously though the rest of the fossil fuels should be reserved for food production and distribution not “green revolution”.
    And video games.

    https://www.forbes.com/sites/timworstall/2012/04/07/were-not-going-to-run-out-of-oil-based-fertilizer/#16b6e5062040

  6. Harry McGibbs says:

    “The world’s already huge debt load smashed the record for the highest debt-to-GDP ratio before 2019 was even over.

    “In fact, it broke that record in the first nine months of last year. Global debt, which comprises borrowings from households, governments and companies, grew by $9 trillion, to nearly $253 trillion, in the first nine months of last year, according to the Institute of International Finance.

    “That puts the global debt-to-GDP ratio at 322%…

    “Such massive worldwide debt is a real risk for the global economy, especially because the IIF expects levels to rise even further in 2020.

    “”Spurred by low interest rates and loose financial conditions, we estimate that total global debt will exceed $257 trillion” in the first quarter of 2020, the IIF said.

    “The Federal Reserve lowered interest rates three times last year, and the European Central Bank’s benchmark rate is still at its post-financial crisis lows.

    “Despite favorable borrowing conditions, the refinancing risk is massive.”

    https://edition.cnn.com/2020/01/13/economy/global-debt-record/index.html

    • Harry McGibbs says:

      “Debt is “the match that lights the fire of every crisis”, in the words of Aaron Ross Sorkin, chronicler-in-chief of the meltdown which nearly collapsed the world’s financial system more than a decade ago…

      “Experts say the biggest potential flashpoints are in the world’s two largest economies.

      “In China, the debt mountain of state-backed companies has soared and defaults are on the rise. In the US, the stock of leveraged loans – the high-risk credit offered to debt-laden companies which carries a higher chance of default – has shot past the trillion-dollar mark.”

      https://www.telegraph.co.uk/business/2020/01/14/trillion-dollar-corporate-debt-mountain-threatening-worlds-economy/

      • If the world economy slows, it becomes more difficult to repay at least some of the debt with interest. If interest rates fall, there is less of a problem. “Extend and pretend” can help as well.

    • CNN shows this chart of world debt:

      It seems to me that the drops in the growth in world debt are what are concerning. The turning of debt growth to debt shrinkage in the third quarter of 2014 may explain the fall in oil prices, starting about then. The fact that it did not start coming back up again until the first quarter of 2016 is an issue as well. In fact, the first time that debt levels rose above the 2nd quarter 2014 level, and stayed there, was the 2nd quarter in 2017. This is sort of when oil prices started rising again.

      The debt decline in early 2018 may be related to China’s problems. The increases in debt are not very high now, compared to immediate prior quarters.

  7. Harry McGibbs says:

    “Recession fears are again on the rise, with the vast majority of chief financial officers bracing for an economic downturn in 2020—and historical data shows that trends of declining optimism among America’s financial executives can sometimes be a harbinger for looming market sell-offs.”

    https://www.forbes.com/sites/sergeiklebnikov/2020/01/13/americas-cfos-are-warning-of-a-recession-heres-why-thats-an-important-indicator/#46de4e743448

    • Harry McGibbs says:

      “Consumer debt is within touching distance of $2 trillion at America’s biggest banks, lead by credit card spends. Wall Street is celebrating… Wall Street expects big banks to post big profits on the interest from consumer credit balances soaring at unnerving record highs.

      “Is this the ‘macroprudence’ America was promised after the last financial crisis? Or reckless brinkmanship in the face of a looming recession?”

      https://www.ccn.com/wall-street-is-engineering-economic-disaster-for-profit-again/

      • The CNN article references a 4Q 2019 Deloitte survey of Chief Financial Officers. It says:

        Downturn concerns dampen 2020 revenue, earnings, investment, and hiring expectations

        The good news is that only three percent now say they expect a true recession, well down from Q1 2019. But 97 percent say a downturn has either already begun or will occur in 2020. Moreover, expectations for consumer and business spending have fallen sharply, and CFOs are less likely than last year to expect higher industry revenue and prices. And they cite much more defensive action around expenses and hiring than in Q1 2019.

        Meanwhile, CFOs’ performance projections for revenue and earnings remain near last quarter’s multiyear lows, and their expectations for capital spending and hiring are again notably depressed. And while the own-company optimism index rose from last quarter’s low, it is still quite weak—with only three lower readings in the last 15 quarters.

        So somehow,CFOs expect the economy to slow, but not really reach recession. (Elsewhere, they say that the US is the bright spot in the world economy.) Their own business will not do very well, and will cut back on hiring, but somehow, the economy as a whole will do better. This sounds a little like the forecast we saw a day or two ago about the economy growth shrinking, but the stock market continuing to rise.

        • Harry McGibbs says:

          Right – somewhat confused, in other words. Which is hardly a surprise at the tail-end of this era of delusional optimism and dodgy accounting.

    • The Forbes article is an article about the Deloitte survey. Its Deloitte write-up that I quoted seems to be substantially different from the Forbes’ writers’ view. As I understand the Deloitte survey, the US economic growth could slow, say to 0.5% or 1.0% per quarter, but they do not really expect two quarters of negative growth. Of course, with rising population, per capita growth is less than the stated growth percentage. Per capita GDP growth would decline at 0.5% published (after inflation deduction) GDP growth.

  8. Harry McGibbs says:

    “A depressing consensus prevailed among economists at the recent American Economic Association annual meetings: the developed world is stuck with low growth, low inflation and low interest rates for years to come. Even worse, there is no consensus on why.“

    https://www.ft.com/content/e125e1e8-35e4-11ea-ac3c-f68c10993b04

  9. Harry McGibbs says:

    “Almost half of UK businesses expect there will be an economic recession this year, while one in three believes the contraction could be as much as 4 per cent, according to a survey of senior directors.

    “The research, based on 250 senior executives at medium-large sized businesses across the UK, also revealed that well over a third (37 per cent) also expect to see a global recession or international global crisis in 2020.”

    https://www.independent.co.uk/news/business/news/uk-economy-recession-2020-survey-a9281666.html

    • Harry McGibbs says:

      “A flood of poor data hit the headlines this morning, threatening to plunge the UK into recession. With the global economy on thin ice, Britain may be the black swan event that brings it all crashing down.

      “As the 6th largest economy on the planet, Britain has the ability to trigger a domino effect on the global stage. Its close ties to Germany (4th largest economy), France (7th), and Italy (8th) contribute to the systematic risk underlying the markets.”

      https://www.ccn.com/5-reasons-why-britain-could-plunge-us-into-a-global-recession/

    • The UK, with all of its big changes ahead, doesn’t seem to be doing well!

      • Tim Groves says:

        I read this morning that the new Japanese Emperor and Empress will be visiting the UK in the spring on their first overseas visit since the coronation. Our two great island nations’ constitutional monarchs will meet, dine and engage in conversations about their happy relationship, their shared values—such as maintaining a philosophy of noblesse oblige in an age when it’s unfashionable, tea drinking, driving on the correct side of the road, and hosting American troops—how to handle family problems, and what they can do together on the world stage. There will be photo ops galore, huge headlines in the press, and a great time will be had by all concerned. There may be a trade deal in the offing. And for a small extra charge, Big Ben may even be allowed to bong for the occasion.

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