Brace for rapid changes in the economy; the world economy is reaching Limits to Growth

Posted on April 24, 2025 by Gail Tverberg

The world economy is at a major turning point, which is why we should brace for rapid changes in the economy. The world is moving from having enough goods and services to go around, to not having enough to go around. The dynamics of the economy are very different with not enough to go around. The hoped-for solution of higher prices doesn’t fix the situation; after a point, adding more buying-power mostly produces inflation. Other solutions are needed. The world economy is reaching what has been called “Limits to Growth.”

Figure 1. Chart made by Gail Tverberg showing the general pattern of secular cycles based on information given in the book Secular Cycles.

Economies throughout the ages have grown until their populations grew too large for resource availability. Researcher Peter Turchin has studied the general pattern of overshoot and collapse scenarios. The chart shown in Figure 1 is based on analyzing eight such cycles in the book Secular Cycles. The fossil fuel age began over 200 years ago, and it now seems to be reaching its end.

I doubt that President Trump thinks in terms such as secular cycles or overshoot and collapse. But tariffs and government cutbacks engineered by the Department of Government Efficiency (DOGE) seem like they might be approaches that will allow the world economy to contract in a way that could be helpful in keeping the collapse from taking place excessively fast.

In this post, I will try to explain the situation further. The issue we are facing is really a physics problem. Governments can print money, but they cannot print resources, especially energy resources. Our bodies are accustomed to having a certain amount of cooked foods in our diets. This, by itself, encourages population growth and eventual overshoot of the resource base. The self-organizing system somehow chooses its own downward path, not falling further or more quickly than necessary, under the Maximum Power Principle. This is what we are encountering now.

[1] In physics terms, the economy is a dissipative structure. Dissipative structures are self-organizing structures that require energy to grow but are only temporary.

The universe is filled with dissipative structures. Humans are dissipative structures, as are all plants and animals. Hurricanes are dissipative structures, as are star systems. Ecosystems are dissipative structures. All these things are temporary. Even economies are temporary, but no one tells us this detail.

The kind of energy that is required varies with the dissipative structure. Green plants use sunshine. Animals require plant or animal food. Humans have evolved to eat a mixture of cooked food and raw food. While a few raw food enthusiasts can get along using a blender to break up food into small particles, the general pattern is that our modern brains require the nourishment that cooked food can provide. Thus, humans need both food and some type of fuel for cooking at least a portion of the food. Fuel is also helpful for heating homes, ridding water of pathogens, and providing transportation.

Many things that we think of as man-made are dissipative structures. Governments are dissipative structures. Governments grow and often become too expensive for their citizens to support. The energy governments use is indirectly obtained through the use of taxes. A little of the energy used by the governments is purchased directly by governments to power their vehicles, and to heat and light their buildings.

Much more of the energy required by governments is indirectly consumed. For example, a portion of the taxes collected goes to pay public officials. This pay is used for things the public officials use, such as food, transportation, and housing. All three of these things require energy at many places in their “lives.”

  • Food – Sunshine to grow; oil to cultivate and transport it to the store; electricity for refrigeration; natural gas or electricity for cooking; human labor for many tasks.
  • Transportation – Fuel to make the metal and other materials used in making the vehicle; human labor to construct the vehicle; fuel to operate the vehicle.
  • Housing – Diesel to prepare the lot where the house is built; energy of many kinds to create and transport materials such as lumber and wiring; human energy to put the pieces together; electricity for lights after it is built; natural gas or electricity to heat the home after it is built.

In fact, every part of GDP requires energy. In some cases, this is “only” human energy. Of course, human energy requires food, some of it cooked (or broken into tiny pieces with an electric blender).

Businesses in general are dissipative structures. So are international organizations of any kind. Cities seem to be dissipative structures. Religious organizations are dissipative structures. Any organization that seems to grow, pretty much on its own, is a dissipative structure.

[2] If the energy sources needed by a dissipative structure become scarce, this can badly disrupt the dissipative structure.

Hurricanes that pass over warm water tend to maintain their strength, but if they go over land, they quickly dissipate. If an animal is deprived of food, it will become weak and eventually die. If a government is deprived of revenue (and the energy sources that this revenue indirectly buys), it will no longer be able to provide the services it has promised. It may default on its debt or collapse.

[3] Many dissipative structures seem to be programmed to eventually go downhill and collapse, even when plenty of energy seems to be available.

Obviously, running out of energy isn’t the only way a dissipative structure comes to an end. Most humans don’t starve to death. Instead, when humans get to be 70 or 80 or so years old, they lose some of their strength. They more easily succumb to illnesses. Other animals are similar. Tomato plants in our gardens seem to be more prone to infestation by pests after a month or two of bearing fruit.

[4] Even economies seem to be programmed to go downhill and collapse.

Economies have a problem with their populations becoming too large for available resources. For many years, it appears that added debt (money supply) can be used to temporarily work around a resource problem. For example, a dam purchased with debt may allow irrigation so more food can be produced for a given population.

The problem with this approach is that the benefits of added debt reach diminishing returns. At some point, an economy discovers that adding debt doesn’t add much energy supply; instead, it simply leads to inflation (and, indirectly, higher interest rates to compensate for this inflation). Also, for governments, the interest on debt becomes a greater and greater burden.

The US government seems to have reached the point of having too much debt. The US Congressional Budget Office (CBO) recently published this chart related to US debt:

Figure 2. Figure from page 10 of The Long-Term Budget Outlook 2025 to 2055, published in March 2025 by the CBO.

US taxes need to keep rising, as a percentage of GDP, just to repay US government debt with interest. This is a path that can lead to hyperinflation. This seems to be the underlying reason for DOGE and the tariffs.

Adding infrastructure such as roads, pipelines, and railroads can be helpful in the beginning. The additional infrastructure enables new businesses to be built that make use of this infrastructure. Initially, the tax revenue from new businesses makes it easy to repay the debt with interest.

But additional roads, pipelines, railroads and other infrastructure are not nearly as helpful. They may add capacity, but they don’t materially change the transportation options. The tax revenue added is less.

At some point, simply maintaining and replacing all the infrastructure becomes burdensome. Adding debt for the replacement of infrastructure becomes burdensome because the new replacement infrastructure adds no new functionality. It just maintains the old functionality. The interest on the debt must come from somewhere, but it is not built into the system the way it was when totally new infrastructure was built. Today’s approach is simply to increase the debt level and hope that the revenue will come from somewhere else.

A related issue is that old factories tend to be less productive than newly built ones that benefited from the latest advances. This allows new factories (perhaps in another part of the world) to make goods in a more cost-efficient way. An older factory is likely to lose out in price competition against a newer, more productive factory elsewhere.

[5] The analysis of Turchin and Nefedov in Secular Cycles suggests that economies often go through the pattern shown in Figure 1.

Economies discover a new resource. Perhaps they have conquered a new land, and they have eliminated the old inhabitants. Or they have cut down trees, allowing more area for farming. At a given level of technology (and fuel for the technology), a given area of arable land can support a particular number of inhabitants. If the population gets too high, the size of farms tends to fall too low to support the farmers and their families. This pattern happens if families allow multiple sons to each inherit a share of the family farm.

Alternatively (and more likely), if the population gets too high, the younger sons don’t inherit any farmland. They start working in services and or on crafts of various kinds. But these alternatives to farming generally don’t pay very well. The many workers with low wages become less able to pay taxes, creating a problem for government funding.

As the population rises, wages of these lower-paid workers become increasingly less adequate to cover the necessities of life. With inadequate nutrition, populations become more subject to epidemics.

According to Secular Cycles, as these problems arise, debt is increasingly used to work around the problems. Slow population growth and increasing debt are characteristics of the Stagflation period shown in Figure 1.

Eventually, economies fail. Governments can fail due to a lack of adequate tax revenue or by being overthrown by unhappy citizens. Alternatively, they may lose a war against another country with better weapons (made with energy supplies). All governments, as dissipative structures, can be expected to eventually fail, one way or another.

[6] The world economy now seems to be headed on a path similar to that shown in Figure 1.

The world economy now seems to be reaching the end of the age of fossil fuels. I believe that the world first entered the stagflation era in 1973, when oil prices first rose dramatically. At that time, it became clear that oil must be used more sparingly. To help economize on oil, smaller, more fuel-efficient cars began to be imported from Japan and Europe. In some places, oil was being burned to generate electricity; this electricity could sometimes be replaced by electricity from nuclear power plants.

In the 1980s, added debt became more important. Companies were told to use “leverage” to become more competitive with producers around the world. Instead of fearing credit, it should be embraced. Computers were increasingly used, and world trade was expanded. World trade very much facilitated the production of complex goods, such as automobiles and computers, because it allowed a very wide array of raw materials to be used in manufacturing.

Figure 3. World trade based on World Bank data. Amount shown are the average of (worldwide imports/world GDP) and (worldwide exports/world GDP). Amounts shown are through 2023.

Figure 3 suggests that world trade stalled in 2008. There has been a slight downward trend since that date. With tariffs, world trade will likely fall more quickly in the future.

Figure 4. Energy consumption per capita, separately, for oil, coal, and nuclear based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

One of the underlying problems facing the world economy is the fact that major types of energy supply have been falling relative to world population for a long time. The high points seem to have been in 2004-2007 for oil, in 2011 for coal, and in 2001 for nuclear (Figure 4).

Figure 5. World middle distillates consumption per capita, based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute. Middle distillates are diesel oil and jet fuel.

Middle distillates (diesel oil and jet fuel) are particularly important in world trade. Middle distillates are plentiful in heavy oil, such as that found in Russia, the oil sands of Canada, and Venezuela. Diesel is important for operating farm equipment, large trucks and ships, and construction equipment.

Middle distillates are in short supply because it is hard to get the price up high enough, for long enough, to compensate for the high cost of extraction, distillation, and transport. If the price of diesel rises much, the price of food tends to rise. Voters don’t like high food prices. This seems to be a major reason that both Russia’s oil exports and Venezuela’s oil exports are subject to sanctions.

Without an adequate supply of middle distillates, world trade needs to be scaled back. I believe that this shortfall is the physics reason underlying the push for increased tariffs. The fact that these tariffs are particularly high against China means that long distance transport across the Pacific Ocean will be scaled back. Shelves in US stores will increasingly lack goods made with Chinese inputs.

[7] Modeling of the overshoot and collapse problem has been done since the 1950s. A recent model suggests that world industrial output is likely to fall quickly, about now.

In 1957, US Navy Rear Admiral Hyman Rickover gave a speech explaining the importance of fossil fuels to the economy and to the military. He then explained that we could not expect fossil fuel extraction to last very long:

 It is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost are likely to run out at some time between the years 2000 and 2050, if present standards of living and population growth rates are taken into account.

Much modeling has been done since that time. Researchers at Massachusetts Institute of Technology did a series of analyses which they published in 1972 in the book, The Limits to Growth. The most recent update to this analysis shows the following summary exhibit.

Figure 6. Output of the recalibrated Limits to Growth model by Arjuna Nebel and others, published in 2023, with Gail Tverberg’s labels showing which lines are “Industrial Output” and which are “Population.” Source.

The 1972 model and its update both look at the world economy from an engineering point of view. The analyses ignore the roles of governments, debt, and many other things important to the economy. The original authors of the 1972 Limits to Growth analysis said that they didn’t have much confidence in the accuracy of their forecasts after the decline had begun because of the many omitted factors.

The disturbing thing from the 2023 analysis is that it shows industrial output dropping about now. This is what I would expect to happen if there is a big drop in world trade.

[8] The world economy is self-organizing. It doesn’t seem to depend on the actions of any one person or group.

The Universe keeps growing and expanding. Many people believe that the Universe spontaneously sprang out of nothing and began to grow. I believe that there was a Creator.

An intricate system of evolution is taking place, with new dissipative structures arising and old dissipative structures coming to an end. The dissipative structures that last are the ones best adapted to the Earth’s ever-changing environment at that time.

Somehow, the world economy (and other ecosystems) maximize the total output of each part of the system, under the Maximum Power Principle. This isn’t dependent on any one system being more efficient or working better than another. Instead, the world economy tends to maximize the total output of the system, given the energy supplies (and other resources, such as water) available. Thus, the world output of goods and services is unlikely to fall so catastrophically that it quickly wipes out most of the world’s human population. For example, if industrial output is limited, it may be concentrated especially on replacement parts for current machinery and on machines needed for food production.

The intricate nature of evolution and the many dissipative structures formed, together with the Maximum Power Principle, leads me to believe that the Creator is still active today.

It seems to me that the self-organizing economy utilizes whatever leaders are available. They don’t need to have good motives for their actions. It isn’t that Donald Trump is a better leader than others, or that his ideas, as promulgated, will take a hold. The system works through many leaders of various political parties. Each leader is somewhat replaceable by other leaders. The underlying physics of the system is what leads to the changes that take place.

Religions seem all to be created by the same Creator. They seem to have many functions, including binding groups together, teaching “best practices” regarding getting along within a group here on earth, and (when resources are short), fighting against other religious groups. Religious organizations seem to be part of the self-organizing economy, as well.

[9] What I see ahead.

(a) Recession seems likely, starting out as being barely perceptible, but getting worse and worse over time.

(b) World output of physical goods and services will begin to decline almost immediately. In particular, products manufactured in the US using inputs from China will become difficult to obtain, as will goods imported into the US from China.

(c) I expect that commodity prices will fall. Deflation seems more likely than inflation. If inflation does take place, I expect that it will take the form of hyperinflation, with central banks issuing huge amounts of money, but there not being very many goods and services to purchase with this money.

(d) I expect that many banks, insurance companies, and pension plans will fail. I expect that governments will not be able to bail them all out. If governments do try to bail out all these failing institutions, the result is likely to be hyperinflation, with not much to buy.

(e) Many governments have plans for digital currencies to replace the currencies we have today. I am doubtful that these plans will work. For one thing, intermittent electricity is likely to become an increasing problem. For another, government organizations, such as the European Union, the World Trade Organization, the World Bank, and the United Nations are likely to start falling apart. Even the United States is likely to become less “united,” or it may comprise fewer states.

(f) I do not see gold as being very helpful for the long term. It seems like small silver coins will be much more tradable in the future. What we will really need is food, water, and shelter. I expect that these will go mostly to workers producing these essentials, rather than to hangers-on to the system.

(g) A few businesses may do well. Figuring out how to produce food in quantity, locally, may be helpful. Converting unused buildings to shelters for poor people may also be helpful. Private “protection” services may also do well.

(h) The stock market provided great returns for US investors in the 2008 to 2024 period, but this cannot be expected to continue. A likely result is that returns will fall very low or will turn negative.

(i) Borrowing is likely to remain challenging, or get worse. Lenders will increasingly recognize the default risk. Some lenders may go out of business.

(j) Over a period of years, trade will change to be more local. The US will lose its status as the holder of the reserve currency. It will no longer try to be the policeman of the world.

[10] There are a lot of things we really don’t know.

The Creator may be creating a religious ending that we are not aware of. In fact, such an ending could come very soon.

Otherwise, dissipative structures are very often replaced by other dissipative structures. New economies may gradually grow up in different parts of the world. Perhaps the new economies will figure out new energy sources that we are not aware of, or make better use of declining energy types. According to Physicist Eric Chaisson, the long-term trend is toward more complex, energy-intense dissipative structures being formed.

Figure 7. Image similar to ones shown in Eric Chaisson’s 2001 book, Cosmic Evolution: The Rise of Complexity in Nature.

“Societies” in Figure 7 seem to be similar to today’s economy.

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Advanced Economies Are Being Pushed Toward Financial Collapse

Posted on March 31, 2025 by Gail Tverberg

I have said in recent posts that the world economy is hitting resource limits of many kinds. These limits include oil, coal, and other sources of energy, including uranium, used as a fuel for nuclear power generation. Because of these limits, the world economy is being forced to shrink back. In my opinion, the direction it is headed in is toward smaller, mostly less-advanced, more independent, economies. This change is also likely to lead to various types of financial collapse for many of today’s Advanced Economies.

Per-capita consumption of these early used energy sources has shrunk since peaking in 2007.

Figure 1. World per-capita consumption of oil, coal, electricity from nuclear power plants, based on data from the 2024 Statistical Review of World Energy, published by the Energy Institute.

Most of us remember the Great Recession of 2007 to 2009. With a declining supply of what used to be inexpensive energy resources, many economies have done poorly. Many of the wealthier countries have papered over their problems with an increasing amount of debt, but the limits to this added-debt approach are now being hit. It is the debt problem that leads to financial collapse.

In this post, I will elaborate on these ideas.

[1] Countries that are today’s Advanced Economies (members of the Organization for Economic Cooperation and Development (OECD)) are likely to fare poorly in this coming contraction.

The Advanced Economies include the US, most of Europe, Japan, Australia, and a few other countries. Their per-capita consumption of oil, coal and nuclear electricity resources has been shrinking significantly since about 2005. The year 2005 was approximately the peak of “conventional” oil supplies. More oil has become available since this date, but this oil is generally more expensive to extract.

Figure 2. Energy consumption per capita for the combination of oil, coal, and electricity from uranium, separately for the Advanced Economies and the Other than Advanced Economies, based on data from the 2024 Statistical Review of World Energy, published by the Energy Institute.

[2] Energy consumption for the Other than Advanced Economies is hitting limits, too.

The Other than Advanced Economies were able to grow in their per-capita use of these three types of fuels between 2001 and about 2013, but since then, their per-capita quantity of these fuels has leveled off. The big impetus for growth was China joining the World Trade Organization in 2001. World demand for inexpensive finished goods empowered China to start extracting coal and other minerals in quantity. But coal mines deplete, just as oil fields deplete, leading to the flat per-capita availability of energy supply for the Other than Advanced Economies since about 2013.

[3] With these changing patterns for the two groups, one potential problem is conflict.

The Other than Advanced Economies have figured out that they are creating a huge share of the world’s goods, but their per-capita use of energy is much lower than that of the Advanced Economies. Why should the Advanced Economies get so much of the finished products available from the world’s resources, when most of the work (and the pollution) has taken place in the Other than Advanced Economies? I would expect this type of thinking to take place in China, Russia, India, Iran and other countries in this group. These countries believe that they could get along perfectly well without the Advanced Economies and their high usage of energy.

[4] With these changing patterns, a second potential problem is financial collapse, especially for the Advanced Economies.

Each economy can be encouraged to grow in two different ways: (1) Through more debt, indirectly adding to more “demand” for finished goods, or (2) Through added supply of inexpensive energy products. Adding debt to pull the economy forward seems to work well if there is not a problem with hitting resource extraction limits. Once an economy starts hitting resource extraction limits, however, the added debt partly adds inflation, rather than finished goods and services, to the output mix. Thus, the debt approach no longer works well.

The world as a whole is now hitting resource extraction limits. Not only do individual citizens become unhappy with the higher inflation level, but investors demand higher interest rates for lending. This higher interest cost becomes a huge problem for the Advanced Economies that already have very high debt levels.

A recently issued report by the US Congressional Budget Office (CBO) shows what is happening in the US.

Figure 3. Figure from page 10 of The Long-Term Budget Outlook 2025 to 2055, published in March 2025 by the CBO.

In a sense, the reports that the CBO publishes are “Best Case” scenarios. The reports are optimistic in two different ways: (1) They assume that no more added-debt bail-out programs will be needed, as were used several times in recent years, and (2) They assume that inflation will quickly fall to 2%, so that interest rates can fall quickly and stay lower from now on.

Even with these assumptions, the results are disturbing. Note that on Figure 3 (in both charts shown), the especially significant increase in debt starts around 2008. This is when the US, and likely most of the other Advanced Economies, started to hide their energy problems by using more debt stimulus.

Even when the most optimistic possible estimate of the future “primary deficit” is made, and when the most optimistic possible forecast of future “net interest” outlays is made, there is still a huge build-up of debt. The implication is that very large tax increases will be needed to maintain current programs. Even with these huge tax increases, the problem will get worse and worse, year after year. There is a need to cut back on existing government programs to avoid adding the need to pay even more interest on debt in the future.

[5] If an economy is forced to shrink back, debts of all kinds become more difficult to repay with interest.

Any economy needs to grow, in order to repay debt with interest. A growing economy has a surplus with which to pay interest.

Figure 4. Repaying debt is easy in a growing economy because the promises that are made can be repaid later, when the economy is larger in terms of goods and services produced. Obviously, repaying a loan in a shrinking economy becomes a problem. Chart made by Gail Tverberg in 2012.

On the other hand, a shrinking economy tends to lead to major debt defaults. Leveraged debt is especially likely to cause problems.

The CBO is now forecasting that the US government could run into debt limit problems as soon as July 2025. Perhaps the US government will find ways around the current apparent shortfall, but the issue of the government not being able to meet its debt obligations without major tax increases or reductions in programs still looms in the background.

I expect that within the next three months, we will start to see loan defaults of some type, such as defaults by hedge funds. Governments will want to step in, but they will be limited by their own financial problems. Defaults on many other kinds of debts are likely to start taking place, as well. If inflation rates rise, and interest rates rise with them, defaults on many kinds of debt could start taking place.

[6] It seems likely that nearly all the Advanced Economies will have similar problems.

The Advanced Economies have tended to offer their citizens many benefits, including pensions for the elderly and some type of healthcare coverage. Many of them have financially supported what they are hoping will be energy types that will take the place of the energy types they seem to be losing.

If an economic system is not growing as fast as it has in the past (because of low energy consumption growth, and lack of debt stimulus), or is actually shrinking, these economies are likely to face a choice between either cutting back on promised programs or raising taxes. Governments will find themselves needing to cut back on programs that they have promised to their citizens, or, alternatively, they will need to default on their debt.

[7] Adding to the problems of the Advanced Economies will be the issue of goods and services needing to be made closer to home.

Without enough oil for all purposes, a logical way to cut back is to use less oil for international shipping. This would tend to reverse the trend toward globalization that started many years ago.

Figure 4 shows that the US started shifting heavy industry to other countries with better supplies of oil as early as 1974. The Kyoto Protocol of 1997 gave another reason (or excuse?) for shifting heavy industry to countries with less expensive, more abundant, energy supplies.

Figure 4. US industrial energy consumption per capita through 2023, based on data of the EIA.

I expect that in the next few years, the Advanced Economies are likely to need to move industrial production back closer to home, to save on limited world oil supplies. This will be difficult to do, especially in a timeframe of less than 20 to 30 years. New mines will be needed for minerals, but the lead times on these are very long, typically 13 years or more. New processing plants for these minerals will likely be needed as well, potentially adding to the lead time. Whole new, short supply chains will be required. Finally, goods and services manufactured closer to home will need to be transported to citizens, sometimes in new ways.

Many of today’s manufactured goods require imports of minerals from China or Russia. To the extent that specific minerals from these countries can no longer be imported, additional closer sources will be needed. This will further add to manufacturing difficulties.

[8] It will not be surprising if governments, or parts of governments, collapse.

History indicates that when civilizations reach resource limits, governments tend to fail. A recent example of this was the collapse of the central government of the Soviet Union in 1991, after an extended period of low oil prices. The Soviet Union was a major exporter of oil, and the low oil prices (plus other internal problems) led to the inability to repay promised debt. The separate republics within the Soviet Union remained, so the people were not left completely without a government. I expect something similar may happen elsewhere in the future.

[9] History suggests that even in a financial collapse, the entire economy will not fall apart, all at once.

Incremental changes are likely to take place. Governments are likely to try to make cutbacks. Financial investments are likely to do especially poorly in the next several years, and high-paying jobs seem likely to disproportionately disappear. The economy will no longer be able support as many specialists as are working today, in many industries.

The electricity supply likely won’t fall off all at once; instead, electricity will become increasingly intermittent, with some areas having more outages than others. Diesel and gasoline will perhaps be available, at least part of the time.

New car sales in the Advanced Economies are likely to fall very soon, leaving citizens mostly dealing with used cars, and the difficulty of finding appropriate replacement parts for used cars. The problem of “empty shelves” in stores is likely to return and get worse.

There will likely be an increasing divide between the relative handful of citizens who are doing well, and the many others. In fact, we are already seeing a trend in this direction in the US. But many of today’s big spenders are likely to be knocked down in any coming economic contraction.

Figure 5. Chart showing spending by income bracket in Bloomberg article, The Richest Americans Kept the Economy Booming. What Happens When They Stop Spending?

[10] Perhaps the good news in this contraction is that major international wars may not be a problem.

Instead, civil wars and local skirmishes may be the order of the day. There may not be resources available to fight long-distance wars, even if many citizens might favor this approach. Wars give an excuse for more debt and more income for soldiers, so they are always popular in troubled economic times. But a lack of materials for making military supplies (including insufficient sources of antimony) and the inability to raise debt financing may impede efforts.

[11] What should we expect in the future?

The US and many other Advanced Economies are likely heading into a worse and longer lasting financial crisis than the 2008 crisis, starting as soon as this summer. The problem will likely not start out as a full financial collapse. Instead, various leveraged borrowers will encounter difficulties. Gradually, the finances and very structures of many government organizations are likely to be threatened. Some government structures that we currently depend upon may disappear.

How the long term will unfold is unclear. We know that ecosystems often operate in wide cycles, and that economic systems are a kind of ecosystem. This relationship suggests the possibility of a later renewal.

Furthermore, Eric Chaisson, in Cosmic Evolution: The Rise of Complexity in Nature, points out that there is a very long term trend in the universe toward more complex and more energy-dense structures. His analysis seems to suggest the possibility of evolution toward a different kind of more complex, energy-dense economy ahead.

In this ever-changing world, there may very well be opportunities for personal success. It will likely be a time of major readjustment, however. Perhaps quite a few people will be able to do well if they can keep their eyes open for opportunities to prosper, making the best possible use (or reuse) of resources that are available.

Appendix: Background on Oil, Coal and Electricity from Uranium

Appendix: Figure 1. Energy consumption per capita, separately, for oil, coal, and nuclear based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

Oil Background

Oil was at one time a very inexpensive fuel, even when adjusted for inflation to 2023’s price level.

Appendix: Figure 2. Brent equivalent world oil prices, adjusted to 2023 price level, based on data from the 2024 Statistical Review of World Energy, published by the Energy Institute.

With the low prices that were available before 1970, oil could be used widely. It could be used to create electricity, and roads could be paved. Many people could afford cars who could not afford them previously.

In 1973, oil prices soared (Appendix: Exhibit 2). Appendix: Figure 3 shows that between 1981 and 2021, falling interest rates helped to make higher oil prices more tolerable. More debt could be added, and with lower interest rates, monthly payments could stay low.

Appendix: Figure 3. Three-month and ten-year US Treasury interest rates, in chart by the Federal Reserve of St. Louis.

Appendix: Exhibit 2 also shows that a big part of the problem since 2021 is that while debt levels are now high, interest rates will not stay down. This means that the cost of drilling new wells is now higher, and the general cost of investment in the economy is higher.

Appendix: Exhibit 1, indicates that, since 1991, the greatest per-capita quantity of oil that customers were able to afford occurred in the 2004 to 2007 period. This was a time in which home mortgage debt stimulus was used to keep the US economy growing; it was the time of Alan Greenspan and the NINJA (No Income, No Jobs, No Assets) home loans. The resulting sub-prime US housing bubble is reported to have lasted from 2003 to 2007. This sub-prime debt bubble is at least part of what led to the 2008 financial crisis.

The high US demand for oil as a result of the home mortgage debt bubble of 2003 to 2007 helped world oil prices to rise and consumption to rise. More recently, per-capita world oil consumption has been down, especially in 2020. Oil supply has not regained the 2004 to 2007 level, or even the 2018 level, in the most recent estimates.

Oil extraction has traditionally been a huge source of tax dollars, especially for oil exporters, even when oil was sold at relatively low prices. Anything that replaces oil needs to fill this role as well, because the economy needs energy (and taxes from energy) to operate. This tax revenue is a way to share what is sometimes called the “surplus energy” of the oil with the government of a country. At currently high extraction costs, this surplus energy benefit is largely disappearing.

Coal Background

Appendix: Figure 1 shows that the fuel in second largest supply has been coal. Its supply grew greatly after 2001, when China joined the World Trade Organization. This growth in coal supply did not last long because coal that was cheapest-to-extract and closest-to-markets quickly depleted. Appendix: Figure 1 shows the peak in per capita coal supply was hit in 2011. 

Coal helped start the industrial revolution. By 1700, it grew to be the dominant fuel in England. Coal gradually replaced firewood and was used in many new ways.

Appendix: Figure 4. Annual energy consumption per person (megajoules) in England and Wales 1561-70 to 1850-9 and in Italy 1861-70. Figure by Wrigley

Appendix: Figure 5 shows the ways coal has recently been used. It is used directly in industry, besides being burned for electricity.

Appendix: Figure 5. Chart showing “first users” of coal, based on an IEA analysis.

Nuclear Background

Appendix: Figure 1 shows that the peak in per-capita nuclear energy production occurred in 2001. But at one time there had been great hope for nuclear power.

It was known as early as the 1950s that fossil fuel supplies were likely to face depletion issues as soon as 2050. Physicist M. King Hubbert was of the belief that electricity from uranium would be too cheap to meter. He also believed that the quantity of electricity produced could be very high. Neither of these things has come to pass.

Appendix: Figure 6. Figure by M. King Hubbert in his paper, Nuclear Energy and the Fossil Fuels

Early nuclear reactors were built to avoid problems that engineers could see needed to be avoided. This approach led to accidents: Three Mile Island (1979), Chernobyl (1986), and Fukushima (2011). It became clear that design upgrades were needed, raising costs and lengthening timelines for building reactors.

In theory, there is quite a bit of uranium to be extracted, but getting the price up high enough, for long enough, has been a problem. The World Nuclear Association shows this chart of production through 2022. Production in recent years has been lower than consumption.

Appendix: Figure 7. World uranium production and reactor requirements (metric tons of uranium) in a chart by the World Nuclear Association.

Fortunately, there has been a supply of nuclear warheads which could be down blended to provide uranium for nuclear reactors. This supply of nuclear warheads is now close to being exhausted. If nuclear power is to be expanded, more uranium will be needed.

Appendix: Figure 8. Chart from ArmsControl.org showing estimated global nuclear warhead inventories, 1945 to 2023.

Other details have proven problematic as well. In theory, the spent fuel can be reprocessed and used as fuel for reactors, but in practice, this process seems to be costly and time-consuming to set up.

Another issue is the high cost of building new nuclear reactors, and the need for debt to fund this cost. Clearly, the higher the interest rate, the higher the cost. Not many organizations can fund these high costs, in advance of actually getting electricity out and delivered to customers.

In general, to keep costs low for customers, the sale of electricity is priced at the margin. In many places, electricity from wind turbines and solar panels is given “priority.” As a result, wholesale electricity prices tend to be too low for electricity from nuclear power plants, driving them out of business. The price level is certainly not high enough to pay high taxes to governments. Such a margin would be needed if nuclear were to have a chance of truly replacing the benefits we have had in the past from inexpensive-to-produce oil.

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Energy limits are forcing the economy to contract

Posted on March 4, 2025 by Gail Tverberg

My view has long been that if the world economy does not have enough energy resources, it will have to contract. The situation is analogous to a baker without enough ingredients to bake the size of cake he wants to make, or a chemist not being able to set up a full-scale model of a reaction. Perhaps, if a plan is made to make a smaller, differently arranged economy, it could still work.

The types of energy with inadequate supplies are both oil (particularly diesel and jet fuel) and coal. Diesel and jet fuel are especially used in long-distance transportation and in food production. Coal is particularly used in industrial activities. Without enough of these fuels, the world economy is forced to make fewer goods and services, and to make them closer to the end user. Somehow the economy needs to change.

My analysis indicates that our expectation of what goes wrong with inadequate energy supplies is wrong. Strangely enough, it is the finances of governments that start to fail, early on. They add too much debt to support investments that do not pay back well. They add too many programs that they cannot be supported for the long term. They become more willing to quarrel with other countries. Of course, no one will tell us what is really happening, partly because politicians themselves don’t understand.

In this post, I will try to explain some of the changes taking place as the economy begins to reorganize and deal with this inadequate energy supply situation.

[1] One energy limit we are hitting is with respect to “middle distillates.” This is the fraction of the oil supply that provides diesel and jet fuel.

Figure 1. Three different oil-related supply estimates, relative to world population. The top line shows oil production from the 2024 Statistical Review of World Energy, published by the Energy Institute. The second line shows international crude oil production, as reported by the US EIA, with data through October 2024. The bottom line shows middle distillates (diesel and jet fuel) relative to world population, using data from the 2024 Statistical Review of World Energy, published by the Energy Institute.

Each type of energy supply seems to be most suitable for particular uses. Middle distillates are the ones the economy uses for long distance transport of both humans and goods. Diesel is also heavily used in farming. If the world is short of middle distillates, we will have to figure out a way to make goods in a way that is closer to the end user. We may also need to use less modern farm equipment.

The top line on Figure 1 indicates that the world economy has gradually been learning how to use less total oil supply, relative to population. Before oil prices began to soar in 1973, oil with little refining was burned to produce electricity. This oil use could be eliminated by building nuclear power plants, or by building coal or natural gas electricity generation. Home heating was often accomplished by deliveries of diesel to individual households. Factories sometimes used diesel as fuel for processes done by machines. Many of these tasks could easily be transitioned to electricity.

After the spike in oil prices in oil prices in 1973, manufacturers started making cars smaller and more fuel efficient. In more recent years, young people have begun deferring buying an automobile because their cost is unaffordable. Another factor holding down oil usage is the trend toward working from home. Electric vehicles may also be having an impact.

On Figure 1, data for crude oil (second line) is available through October 2024. This data suggests that crude oil production has been encountering production problems recently. Note the oval labeled “Crude oil problem,” relating to recent production for this second line. The other two lines on Figure 1 are only through 2023.

The problem causing the cutback in oil production (relative to population) is the opposite of what most people have expected: Prices are not high enough for producers to ramp up production. OPEC, and its affiliates, have decided to hold production down because prices are not high enough. The underlying problem is that oil prices are disproportionately affected by what users can afford.

Food prices around the world are critically dependent upon oil prices. The vast majority of buyers of food, worldwide, are poor people. If budgets are stretched, poor people will tend to eat less meat. Producing meat is inefficient; it requires that animals eat a disproportionate number of calories, relative to the food energy they produce. This is especially the case for beef. A trend toward less meat eating, or even eating less beef, will tend to hold down the demand for oil.

Another approach to holding down food costs is to buy less imported food. If consumers choose to eat less high-priced imported food, this will tend to use less oil, especially diesel and jet fuel. Another thing customers can do to hold down food costs is to visit restaurants less. This also tends to reduce oil consumption.

On Figure 1, the third line is the one I am especially concerned about. This is the one that shows middle distillate (diesel and jet fuel) consumption. This is the one that was greatly squeezed down in 2020 by the restrictions related to Covid. Diesel is the fuel of heavy industry (construction and road building), as well as long distance transport and agriculture. Electricity is rarely a good substitute for diesel; it cannot give the bursts of power that diesel provides.

Close examination of the third line on Figure 1 shows that between about 1993 or 1994 and 2007, the consumption of middle distillates was rising relative to world population. This makes sense because international trade being ramped up, starting about this time. There was a dip in this line in 2009 because of the Great Recession, after which middle distillates per capita consumption noticeably leveled off. This flattening could be an early pointer to inadequacy in the middle distillate oil supply.

In 2019, middle distillate consumption per capita first started to stumble, falling 1.4% from its previous level. The restrictions in 2020 brought middle distillate consumption per capita down by 18% from the 2019 level. This was a far greater decrease than for total oil (top line on Figure 1) or crude oil (middle line). By 2023 (the latest point), per capita consumption had only partially recovered; the level was still below the low point in 2009 after the Great Recession.

Middle distillates can be found in almost any kind of oil, but the best supply is in very heavy oil. Examples of providers of such heavy oil are Russia (Urals), Canada (oil sands), and Venezuela (oil sands in Orinoco belt). The price for such heavy oil tends to lag behind the price for lighter crude oil because of the high cost of transporting and processing such oil.

Strangely enough, countries that are not getting enough funds for their exported fossil fuels tend to start wars. My analysis suggests that at the time World War I started, the UK was not getting a high enough price for the coal they were trying to extract. The coal was getting more expensive to extract because of depletion. Germany had a similar problem at the time World War II started. The financial stresses of exporters who feel they are getting an inadequate price for their exported fossil fuels seems to push them toward wars.

We can speculate that the financial pressures of low oil prices have been somewhat behind Russia’s decision to be at war with Ukraine. The recent problems of Venezuela and Canada may also be related to the low prices of the heavy oil they are trying to extract and export.

Extracting a greater quantity of heavy oil would likely require higher prices for food around the world because of the use of diesel in growing and transporting food. Publications showing oil reserves indicate that there is a huge amount of heavy oil in the ground around the world; the problem is that it is impossible to get the price up high enough to extract this oil.

The existence of these heavy oil “reserves” is one of the things that makes many modelers think that our biggest problem in the future might be climate change. The catch is that we need to get the oil out at a price that consumers of food and other goods can afford.

[2] Another energy limit we are hitting is coal.

Coal energy is the foundation of the world’s industry. It is especially used in producing steel and concrete. Coal started the world industrial revolution. The primary advantage it has historically had, is that it has been inexpensive to extract. It is also fairly easy to store and transport. Coal can be utilized without a huge amount of specialized or complex infrastructure.

China produces and consumes more than half of the world’s coal. In recent years, it has been far above other countries in industrialization.

Figure 2. Chart by the International Energy Agency showing total fuel consumed by industry, for the top five fuel consuming nations of the world. TFC = Total Fuel Consumed. Chart from 2019.

World coal consumption per capita has been falling since about 2011. Arguably, world coal consumption was on a bumpy plateau until 2013, with world coal consumption per capita truly falling only during 2014 and thereafter.

Figure 3. World coal consumption per capita, based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute, showing data through 2023.

This pattern of coal usage means that world industrialization has been constricted, especially since 2014. In fact, the restriction started as early as 2012. It became impossible for China to build as many new condominium apartment buildings as inexpensively as promised; this eventually led to defaults by builders. World steel output started to become restricted. The model of world economic growth, led by China and other emerging markets, began to disappear.

The problem coal seems to have is the same as the problem diesel has. There is a huge quantity of coal resources available, but the price never seems to rise high enough for long enough for producers to truly ramp up production, especially relative to the ever-growing world population. Coal is especially needed now, with intermittent wind and solar leaving large gaps in electricity generation that need to be filled by burning some fossil fuel. Coal is much easier to ship and store than natural gas. Oil is convenient for electricity balancing, but it tends to be high-priced.

[3] Political leaders created new narratives that hid the problems of inadequate middle-distillate and coal supplies.

The last thing we can expect a politician to tell his constituents is, “We have a shortage problem here. There are more resources available, but they are too expensive to extract and ship to provide affordable food, electricity, and housing.”

Instead, political leaders everywhere created new narratives and started to encourage investments following those new narratives. To encourage investment, they lowered interest rates (Figure 4), made debt very available, and offered subsidies. Governments even added to their own debt to support their would-be solutions to energy problems.

Figure 4. Returns on 3-month and 10-year US Treasury investments. Chart by Federal Reserve of St. Louis. Data through February 21, 2025.

Political leaders developed very believable narratives. These narratives were similar to Aesop’s Fable’s “Sour Grapes” story, claiming that the grapes were really sour, so the wolf didn’t really want the grapes he initially sought.

The popular narrative has been, “We don’t really want coal or heavy types of oil anyhow. They are terribly polluting. Besides, burning fossil fuels will lead to climate change. There are new cleaner forms of energy. We can also stimulate the economy by adding more programs, including more subsidies to help poor people.”

This narrative was supported by politicians in most energy-deficient countries. The increase in debt following this narrative seemed to keep the world economy away from another major recession after 2008. People began to believe that it was debt-based programs, especially those enabled by more US government spending, that pulled the economy forward.

They did not understand adding debt adds more “demand” for goods and services in general, and the energy products needed to make them. However, it doesn’t achieve the desired result if inexpensively available energy resources are not available to meet this demand. Instead, the pull of this demand will partly lead to inflation. This is the issue the economy has been up against.

[4] What could possibly go wrong?

There are a lot of things that have started to go wrong.

(a) US governmental debt is skyrocketing to an unheard-of level. Relative to GDP, the US Congressional Budget Office (CBO) projects that US debt will soon be higher than it was at the time of World War II.

Figure 5. Chart by the CBO showing US Federal Debt, as ratio to GDP, from 1900 to 2035. Source.

Notice that the latest surge in US government debt started in 2008, when the Federal Reserve decided to bail out the economy with ultra-low interest rates (Figure 4). A second surge took place in 2020, when the US government began more give-away programs to support the economy as Covid restrictions took place. The CBO forecasts that this surge in debt will continue in the future.

(b) Interest on US government debt has become a huge burden. We seem to need to increase government debt, simply to pay the ever-higher interest payments. This is part of what is driving the increased debt projected in the 2025 to 2035 period.

Figure 6 shows a breakdown of actual Fiscal Year 2024 US Federal Government spending by major categories.

Figure 6. Figure by Gail Tverberg, based on CBO breakdown of US government spending for FY 2024 given at this link.

Note that US government spending on interest payments ($881 billion) is now larger than defense payments ($855 billion). Part of the problem is that the ultra-low interest rates of the 2008 to 2022 period have turned out to be unsustainable. (See Figure 4.) As older debt at lower interest rates is gradually replaced by more recent debt at higher rates, it seems likely that these interest payments will continue to grow in the future.

(c) Continued deficit spending appears likely to be needed in the future.

Figure 7. Chart by CBO showing annual deficit in two pieces–(a) the amount simply from spending more than available income, and (b) interest on outstanding debt. Source.

The CBO estimates in Figure 5 seem likely to be optimistic. In January 2025, the CBO expected that inflation would immediately decrease to 2% and stay at that level. The CBO also expects the primary deficit to fall.

(d) The shortfall in tax dollars cannot easily be fixed.

Today, tax dollars mostly come from American taxpayers, either as income taxes or as payroll taxes.

Figure 8. Past and Expected Sources of US Federal Government Funding, according to the CBO.

A person can deduce that to stop adding to the deficit, additional taxes of at least 5% or 6% of GDP (which is equivalent to 12% to 14% of wages) would be needed. Doubling payroll taxes might provide enough, but that cannot happen.

Corporate income taxes collected in recent years have been very low. US companies are either not very profitable, or they are using international tax laws to provide low tax payments.

(e) The incredibly low interest rates have encouraged all kinds of investment in projects that may make people happy, but that do not actually result in more goods and services, or more taxable income.

Figure 8 shows that US corporate income taxes have been falling over time. The reason is not entirely clear, but it may be that companies set their sights lower when the return that is required to pay back debt with interest is low. All the subsidies for wind, solar, electric vehicles, and semiconductor chips have focused the interest of businesses on devices that may or may not be generating a huge amount of taxable income in the future.

I have written articles and given talks such as, Green Energy Must Generate Adequate Taxable Income to Be Sustainable. Green energy can look like it would work if a person uses a model with an interest rate near zero, and policies that give renewable electricity artificially high prices when it is available. The problem is that, one way or another, the system as a whole still needs to generate adequate taxable income to keep the government operating.

Of course, many of the investments with the additional debt have been in non-energy projects. There have been do-good projects around the world. Young people have been encouraged to go to college using debt repayable to the government. Government funding has supported healthcare and pensions for the elderly. But do these many programs truly lead to higher tax dollars to support the US government? If the economy truly were very rich (lots of inexpensive surplus energy), it could afford all these programs. Unfortunately, it is becoming clear that the US has more programs than it can afford.

(f) The ultra-low interest rates have encouraged asset price bubbles and wealth disparities.

With ultra-low interest rates and readily available debt, property prices tend to rise. Investors decide to buy homes and “flip” them. Or they buy them, and plan to rent them out, hopefully making money on price appreciation.

Stock market prices are also buoyed by the readily available debt and low interest rate. The US S&P 500 stock market has provided an annualized return of 10.7% per year since 2008, while International Markets (as measured by the MSCI EAFE index) have shown a 3.3% annual return for the same period, according to Morningstar. The huge increase in US government debt no doubt contributed to the favorable S&P 500 return during this period.

Wealth disparities tend to rise in an ultra-low interest period because the rich disproportionately tend to be asset owners. They are the ones who use “leverage” to get even more wealth from rising asset prices.

(g) Tensions have risen around the world, both between countries and among individual citizens.

The underlying problem is that the system as a whole is under great strain. Some parts of the system must get “shorted” if there is not enough coal and certain types of oil to go around. Politicians sense that China and the US cannot both succeed at industrialization. There is too little coal, for one thing. China is struggling; quite often it seems to be trying to try to “dump” goods on the world market using subsidized prices. This makes it even more difficult for the US to compete.

Individual US citizens are often unhappy. With the bubble in home prices and today’s interest rates, citizens who are not now homeowners feel like they are locked out of home ownership. Inflation in the cost of rent, automobiles, and insurance has become a huge problem. People who work at unskilled hourly jobs find that their standard of living is often not much (or any) higher than people who choose to live on government benefits rather than work. Fairly radical leaders are voted into power.

[5] The major underlying problem is that it really takes a growing supply of low-priced energy products to propel the economy forward.

When plenty of cheap-to-extract oil and coal are available, growing government debt can help to encourage their development by adding to “demand” and raising the prices consumers can afford to pay. High prices of oil and coal become less of a problem for consumers.

Figure 9. Average annual Brent equivalent oil prices, based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

But when energy supply of the required types is constrained, the additional buying power made available by added debt tends to lead to inflation rather than more finished goods and services. This inflationary tendency is the problem the US has been contending with recently.

Strangely enough, I think that growing inexpensive coal supply supported the world economy, as oil prices rose to a peak in 2011. As China industrialized its economy using coal, its demand for oil rose higher. The higher world demand coming from this industrialization helped to raise oil prices. But as coal supply (relative to world population) began to fall, oil prices also began to fall. By 2014, the decline in industrial production caused by the lower coal supply (Figure 3) likely contributed to the fall in oil prices shown on Figure 9.

It is the fact that oil prices have not been able to rise higher and higher, even with added government debt, which is inhibiting oil production. World coal production is inhibited by a similar difficulty.

[6] The world economy seems to be headed for a major reorganization.

The world economy seems to be headed in the direction that many, many economies have encountered in the past: Collapse. Collapse seems to take place over a period of years. The existing economy is likely to lose complexity over time. For example, with inadequate middle distillates, long-distance shipping and travel will need to be scaled way back. Trading patterns will need to change.

Governments are among the most vulnerable parts of economies because they operate on available energy surpluses. The collapse of the Central Government of the Soviet Union took place in 1991, leaving in place more local governments. Something like this could happen again, elsewhere.

I expect that complex energy products will gradually fail. Gathering biomass to burn is, in some sense, the least complex form of supplemental energy. Oil and coal, at least historically, have not been too far behind, in terms of low complexity. Other forms of today’s human-produced energy supply, including electricity transmitted over transmission lines, are more complex. I would not be surprised if the more complex forms of energy start to fail, at least in some parts of the world, fairly soon.

Donald Trump and the Department of Government Efficiency seem to be part of the (unfortunately) necessary downshift in the size of the economy. As awful as may be, something of this sort seems to be necessary, if the US government (and governments elsewhere) have greatly overpromised on what goods and services they can provide in the future.

The self-organizing economy seems to make changes on its own based on resource availability and other factors. The situation is very similar to the evolution of plants and animals and the survival of the best adapted. I believe that there is a God behind whatever changes take place, but I know that many others will disagree with me. In any event, these changes cannot take place simply because of the ideas of a particular leader, or group of leaders. There is a physics problem underlying the changes we are experiencing.

There is a great deal more that can be written on this subject, but I will leave these thoughts for another post.

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Southeast Asia can perhaps avoid the worst impacts of inadequate oil supply

Posted on February 4, 2025 by Gail Tverberg

Some of my frequent commenters know that I recently returned from a visit to Southeast Asia. In this post, I would like to present a little energy-related information about this part of the world. Most of my information is from published energy reports, but a little is from my visit to Thailand, Cambodia, and Vietnam. I have included these countries in my Southeast Asia totals, plus Indonesia, Malaysia, the Philippines, Singapore, and (to the extent I could find the data), amounts for a few other small countries included in the grouping used by the United Nations in its “Southeast Asia” grouping.

While Southeast Asia shares most of the energy problems of the rest of the world, it seems to me that this region is somewhat better placed to handle the energy shortfalls that lie ahead than many other regions. Southeast Asia’s warm, wet climate is helpful, as is its supply of coal, particularly in Indonesia. Many of the people in this part of the world are used to living in cramped quarters–three generations in a large one-room home, for example. Abundant forests provide a renewable source of energy. Religious traditions help provide order. These factors may work together to allow the economies of these countries to continue to some extent, even as much of the rest of the world pushes in the direction of collapse.

[1] Southeast Asia is finding it must import ever-larger amounts of oil to meet the needs of its growing economies.

Figure 1. Oil production and consumption are from the 2024 Statistical Review of World Energy, published by the Energy Institute. Oil imports are calculated by subtraction.

Figure 1 shows that Southeast Asia produces a little oil itself. This oil production (blue line) reached a peak in 2000 and has fallen since then. Such a pattern is common among the countries of the world–oil production starts falling once the easily extracted oil is removed.

Southeast Asia’s oil consumption (orange line) has generally been growing. Up until 1993, the area produced enough oil for its own needs. More recently, Southeast Asia’s oil needs have been met through increasing imports of oil. Thus, Southeast Asia has been a net importer of oil for over 30 years. With reduced travel related to Covid in 2020 and 2021, there was a dip in consumption and imported oil in these years. By 2023, however, consumption was back above 2019 levels, and imports were higher than in 2019.

[2] Natural gas production in Southeast Asia reached a peak in 2015, and it has been declining ever since.

The situation with natural gas production is similar to that of oil. Southeast Asia’s natural gas supply reached a peak in 2015, and it has been falling ever since.

Figure 2. Natural gas production and consumption are from the 2024 Statistical Review of World Energy, published by the Energy Institute. Natural gas imports are calculated by subtraction.

Figure 2 shows that once natural gas production (blue line) began to decline, Southeast Asian natural gas consumption (orange line) started to flatten out and even decline a bit. Natural gas exports began to decline, as well, beginning more than a decade before the peak in production was reached. Some of the natural gas exports are liquefied natural gas exports, under long term contracts. These cannot easily be cut back because of inadequate production.

Today, in many parts of the world, there is high demand for natural gas to balance out electricity generated by wind and solar. Southeast Asia, which has a declining supply of natural gas available for export, cannot provide much natural gas to help the countries dealing with this intermittency problem. But, as we will see, Southeast Asia itself seems to have mostly stayed away from wind and solar. This is a plus.

It seems likely that both oil and natural gas extraction within Southeast Asia will continue to decline. This is a worry for the future.

[3] Southeast Asia’s coal supply has been growing, helping to support its industry and exports.

Coal production is still growing in Southeast Asia, with Indonesia being the primary source of production.

Figure 3. Coal production and consumption are from the 2024 Statistical Review of World Energy, published by the Energy Institute. Coal imports are calculated by subtraction.

A recent report says that coal production in Indonesia in 2024 increased by 7.1% over production in 2023, showing that growth in coal production continues. Malaysia, Thailand, and Vietnam are all importers of coal, much of which likely comes from Indonesia.

[4] Southeast Asia’s per capita energy consumption has been rising, due to increasing coal consumption and the addition of other types of energy, made possible by fossil fuels.

Figure 4. Per capita energy consumption by type, based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

Hydroelectricity seems to be the single largest category of “All Other” energy supply. Building dams to produce hydro-electric power has been made possible by the availability of coal to produce concrete and steel.

Another major category of “All Other” seems to be the burning of wood chips.

Figure 5. Place in Vietnam where trees on the side of a mountain were being clearcut to provide wood chips. We were told that the area would be reforested with a rapidly growing species that would again be clearcut.

A third category of “All Other” energy production is geothermal power. Both Indonesia and the Philippines generate electric power using geothermal energy. Geothermal works best when a country has volcanic mountains that can provide the high temperatures required. Southeast Asia seems to have more than its share of volcanoes.

Wind turbines and solar panels seem to be relatively little used in this part of the world. Nuclear does not seem to be used at all in this part of the world.

This combination of All Other energy supply seems to be more stable than the more common “wind and solar” version of All Other energy supply. Also, nuclear electricity now seems to have a uranium supply problem, as I discussed in a recent post. It is a high-tech solution that poor countries, such as those in Southeast Asia, are likely to have considerable problems trying to emulate.

[5] Southeast Asia has multiple advantages that allow its population to get along with relatively little energy, if fossil fuels become less available.

As mentioned in the introduction, the mild climate of Southeast Asia allows people to get along without heating or cooling their homes. In fact, homes don’t need to be very substantial if they don’t need insulation. They can easily be rebuilt with local materials.

On our trip, we saw several one-room homes in which up to three generations lived together. Of course, people everywhere would like fancy homes with lots of rooms, indoor bathrooms, and heating and cooling. But these things require fossil fuels, both to initially build and to maintain. If people can learn to live in very modest housing, it greatly reduces the fossil fuel energy needs of an economy.

It seems to me that if the world is heading in the direction of not enough fossil fuels, Southeast Asia is a region that can get along without much harm, even on less fuel than is available today. Farming seems to be done with little use of fuel, right now. Many families are used to living in shared living spaces. Daily markets, selling meat, including live chickens and ducks, seem to be common.

Based on my calculations, the per-capita energy consumption of Southeast Asia is about half that of China and about 21% of the US’s average per-capita energy consumption.

Economies in warm, wet climates have an advantage because agriculture can be done year-around. Without fossil fuels, Southeast Asia would not be able to support as large a population as today, but it seems likely that these countries could still support a substantial, if lower, population. The Garden of Eden mentioned in the Book of Genesis in the Bible seemed to have some of the characteristics of Southeast Asian countries today. If “warm and wet” was a solution in the early days, it may be a solution in the future.

[6] Southeast Asia has nowhere near the scale of energy supplies to replace China, with its huge industrial output.

Figure 6. Total electricity production of Southeastern Asia compared to that of China (excluding Hong Kong), based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

China’s electricity production in 2023 was 23.0 times its electricity production in 1985. Southeast Asia’s electricity production in 2023 was 12.8 times its electricity production in 1985. Thus, China’s growth rate has been close to twice as fast as Southeast Asia.

While China’s rapid growth has been impressive, it is very hard to maintain. Southeast Asia’s slower growth curve, which is still somewhat rising, would seem to be easier to maintain. If it does start to fall, it will hopefully be a slower fall.

[7] Indonesia, which is part of Southeast Asia, is a world leader in coal production.

Coal tends to be an inexpensive source of heat and electricity and is essential in making steel. The industrial revolution around the world was started with the use of coal. Coal is still used heavily in manufacturing. While the wealthy countries of the world talk a great deal about carbon dioxide and climate change, the poorer countries of the world–including those in Southeast Asia–continue to use coal, to the extent it is available.

Worldwide, China is number one in coal production (93.10 exajoules), according to the 2024 Statistical Review of World Energy. India is in second place, with production of 16.65 exajoules. Indonesia is close behind in third place, with coal production of 15.73 exajoules. The advantage that Indonesia has is that its population (281,000) is much lower than that of India (1.4 billion), so that its coal-benefit relative to population is much greater than that of India.

I don’t think that we know how long coal production will continue to grow. Theoretically, how long production will continue to grow is tied to the amount of coal reserves, but it is questionable whether today’s published reserve numbers are very useful in determining the quantity available at a price customers are willing to pay. The 2024 Statistical Review of World Energy report shows quite low coal reserves for Southeast Asia, and quite high coal reserves for the US, Russia, and Australia. This same report has a note at the top of the page showing coal reserves that says, “The methodology and timing of updating reserve numbers is under review.” The authors of the report seem to be saying, “Expect big revisions of these reserve numbers in the future.”

[8] People of Southeast Asia seem to have a tradition of being hard working and co-operative.

One report describes the work culture of Southeast Asia as “Community oriented, with respect for seniors, and flexibility.” The same report indicates that maintaining a calm demeanor and not showing anger in public are important in countries like Thailand and Indonesia. The article indicates that smiling plays a critical role in communication, keeping the interactions positive.

My husband and I were impressed by how happy the Buddha figures seemed to be.

Figure 7. Happy Buddha statue in southern Vietnam.

Religions seem to help provide a safety net for the poor. Working as a priest gives an option for income for those who would otherwise be unemployed and are willing to study.

[9] The world economy, including Southeast Asia, is already beginning to encounter oil shortfalls. One way they affect the economy is through less growth in long-distance tourism.

There is a temptation to believe that the tourist trade will grow, allowing the economies of Southeast Asia to grow at the same time. However, it is becoming apparent that this doesn’t necessarily work well in a world struggling with inadequate oil supplies.

We saw many examples of buildings, including entire resorts, that had been started and apparently abandoned. In particular, Cambodia seemed to have many buildings that were started as Chinese investments. We were told that these structures had been left without being completed, in or around 2020.

The northern part of Vietnam seemed to be experiencing some of the same difficulty. This partly completed building is from Da Nang, a coastal city in what was formerly North Vietnam.

Figure 8. A building in the Da Nang, Vietnam, area that seemed to have been abandoned before it was completed.

[10] We will have to wait and see how things really turn out.

Southeast Asia seems to be able to feed an awful lot of people with its rice fields and fish farms, operated with very little fossil fuel input.

Figure 9. A rice farm in Vietnam. White “flags” are to scare away birds.

There are a lot of pieces of the story we don’t understand. Without enough oil, people may need to stay closer to home. But quite a few people in warm, humid climates may be able to get along, for quite a while, with very modest living arrangements.

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An Energy and the Economy Forecast for 2025

Posted on January 5, 2025 by Gail Tverberg

As the world enters 2025, the critical issue we are facing is Peak Crude Oil, relative to population. Crude oil has fallen from as much as .46 gallons per person, which was quite common before the pandemic, to close to .42 gallons per person recently (Figure 1).

Figure 1. World crude oil production per person, based on data of the US EIA. Data through September 2024.

People have a misimpression regarding how world peak oil can be expected to behave. The world economy has continued to grow, but now it is beginning to move in the direction of contraction due to an inadequate supply of crude oil. In fact, it is not just an inadequate crude oil supply, but also an inadequate supply of coal (per person) and an inadequate supply of uranium.

We know that when a boat changes direction, this causes turbulence in the water. This is similar to the problems we are currently seeing in the world economy. Physics dictates that the economy needs to shrink in size to match its energy resources, but no country wants to be a part of this shrinkage. This indirectly leads to major changes in elected leadership and to increased interest in war-like behavior. Strangely enough, it also seems to lead to higher long-term interest rates, as well.

In this post, I share a few thoughts on what might lie ahead for us in 2025, in the light of the hidden inadequate world energy supply. I am predicting major turbulence, but not that things fall apart completely. Stock markets will tend to do poorly; interest rates will remain high; oil and other energy prices will stay around current levels, or fall.

[1] I expect that the general trend in 2025 will be toward world recession.

With less oil (and coal and uranium) relative to population, the world can be expected to produce fewer goods and services per person. In some sense, people will generally become poorer. For example, fewer people will be able to afford new cars or new homes.

This trend toward lower purchasing-power tends to be concentrated in certain groups such as young people, farmers, and recent immigrants. As a result, older people who are well-off or firmly established may be able to mostly ignore this issue.

While the shift toward a poorer world has partially been hidden, it has been a huge factor in allowing Donald Trump to be voted back into power. Major shifts in leadership are taking place elsewhere, as well, as an increasing share of citizens become unhappy with the current situation.

[2] Many governments will try to hide recessionary tendencies by issuing more debt to stimulate their economies.

In the past, adding debt was found to be effective way of stimulating the world economy because energy supplies supporting the world economy were not seriously constrained. It was possible to add new energy supplies, quite inexpensively. The combination of additional inexpensive energy supplies and additional “demand” (provided by the added debt) allowed the total quantity of goods and services produced to be increased. Once energy supplies started to become seriously constrained (about 2023), this technique started to work far less well. If energy production is constrained, the likely impact of added debt will be added inflation.

The problem is that if added government debt doesn’t really add inexpensive energy, it will instead create more purchasing power relative to the same number, or a smaller number, of finished goods and services available. I believe that in 2025, we are heading into a situation where ramping up governmental debt will mostly lead to inflation in the cost of finished goods and services.

[3] Energy prices are likely to remain too low for fossil fuel and uranium producers to raise investments from their current low levels.

Recession and low prices tend to go together. While there may be occasional spikes in oil and other energy prices, 2025 is likely to bring oil and other energy prices that are, on average, no higher than those of 2024, adjusted for the overall increase in prices due to inflation. With generally low prices, producers will cut back on new investment. This will cause production to fall further.

[4] I expect “gluts” of many energy-related items in 2025.

Gluts are related to recession and low prices for producers. The underlying problem is that a significant share of the population finds that finished goods, made with energy products and investment at current interest rates, are too expensive to buy.

Even farmers are affected by low prices, just as they were back at the time of the Great Depression. We can think of food as an energy product that is eaten by people. Farmers find that their return on farm investment is too low, and that their implied wages are low. Low income for farmers around the world feeds back through the system as low buying power for new farm equipment, and for buying goods and services in general.

In 2025, I expect there will be a glut of crude oil due to a lack of purchasing power of many poor people around the world. My forecast is similar to the forecast of the IEA that predicts an oversupply of oil in 2025. Also, a December 2024 article in mining.com says, “A glut of coal in China is set to push falling prices even lower.”

Even wind turbines and solar panels can reach an oversupply point. According to one article, number of Chine solar panel builders seems to be far too high for world demand, leading to a potential shake out. As the share of wind and solar power added to the electric grid increases, the frequency of low or negative payment for wholesale electric power increases. This makes adding more wind turbines and solar panels problematic, after a certain point. We don’t yet have a cost-effective way of storing intermittent electricity for months on end. This seems to be part of the reason why there recently were no bidders for producing more offshore wind power in Denmark.

[5] I expect long-term interest rates to remain high. This will be a problem for new investments of all kinds and for governmental borrowing.

In Section 2 of this post, I tried to explain that a peak-oil impact is likely to be inflation. This occurs because ramping up debt to try to stimulate the economy no longer works to get additional cheap energy products from the ground. Instead of getting as many finished goods and services as hoped for, the added debt tends to produce inflation instead.

I believe that we are reaching a stage of fossil-fuel depletion where it is becoming increasingly difficult to ramp up production, even with added investment. Because of the added debt added in an attempt to work around depletion, inflation in the price of finished goods and services can be expected. Investors are beginning to see long-term inflation as a likely problem. As a result, they are starting to demand higher long-term interest rates to compensate for the expected decrease in buying power.

Figure 2. Interest rates on 10-year US Treasury Securities, in a chart by the Federal Reserve of St. Louis. Data is through December 30, 2024.

Figure 2 shows that US long-term interest rates have varied widely. There was a period of generally dropping long-term interest rates from 1981 to 2020. Starting in late 2020, interest rates began to rise; in 2023 and 2024 they have been in the 4% to 5% range. These relatively high rates are occurring because lenders are demanding higher long-term interest rates in response to higher inflation rates.

Because of inflationary pressures, I expect that long-term interest rates will tend to stay at today’s high level in 2025; they may even rise further. These continued high interest rates will become a problem for many families wanting to purchase a home because US home mortgage rates rise and fall with US 10-year interest rates. Often families are faced with both high home prices and high interest rates. This combination makes mortgage costs a problem for many families.

Governments are also adversely affected. They tend to hold large amounts of debt that they have accumulated over a period or years. Up until 2020, much of this added debt often was at a very low interest rate. As more long-term debt at higher interest rates is added, annual interest rate payments tend to rise rapidly. This can cause a need to raise taxes. Japan, especially, would be affected by higher interest rates because of its high level of government debt, relative to GDP.

Higher interest rates will also raise costs for citizens trying to finance the purchase of homes, and for investors wanting to build wind turbines or solar panels. In fact, investment in any kind of factory, pipelines, or electricity transmission will tend to become more expensive.

In a sense, we seem to be seeing the peak oil problem shifting in a way that affects interest rates and the economy in general. Either higher interest rates or higher oil prices will tend to push the economy toward recession. We tend to look for rising prices to signal an oil supply problem, but perhaps that only works when there is excessive demand. If the problem is really inadequate oil supply, perhaps we should look for higher long-term interest rates, instead.

[6] Industry around the world is likely to be hit especially hard by recessionary tendencies.

Industry requires investment. Higher interest rates make new industrial investment more expensive. Industry is also a heavy user of energy products. Putting these observations together, it shouldn’t come as a surprise if new industrial investment is one of the first places to be cut back because of peak oil supply.

Figure 3. Expected world industrial output, based on calculations I made with using industrial output and population forecasts from detailed output data provided with the article Recalibration of limits to growth: An update of the World3 model” by Arjuna Nebel et al.

The original 1972 Limits to Growth analysis, in its base model, suggested that resources would start to run short about now. The variables in this model were recently recalibrated in the article, “Recalibration of limits to growth: An update of the World3 model.” Based on the detailed data given in the endnotes to the article, I calculated the expected industrialization per capita shown in Figure 3.

Based on Figure 3, this model shows that industrialization per person reached a peak in 2017. Peak industrialization (total, not per capita) occurred in 2018, which coincides with peak crude oil extraction (not per capita).

The model seems to suggest that after an inflection point in 2023 (that is 2024 and after), industrialization will start to fall more steeply. The model shows a decrease in production per capita of 4.1% in 2024 and of 5.3% in 2025. Such decreases would push the world economy toward recession.

The model suggests that people, on average, are getting poorer in terms of the quantity of goods and services they can afford to buy. New cars, motorcycles, and homes are becoming less affordable. Heavily industrialized countries, such as China, South Korea, and Germany are likely to be especially affected by headwinds to industrialization. I expect that the economic problems in these countries will continue and are likely to worsen in 2025.

[7] The US has tried to isolate itself from this nearly worldwide recession. I expect that during 2025, the US will increasingly slip into recession, as well.

There are several reasons for this belief:

(a) The US is heavily dependent upon imports of raw material. China is restricting exports of critical minerals used by the US. This will make it very difficult or impossible to ramp up high tech industries as planned.

(b) The US is heavily dependent on Russia for supplies of enriched uranium. Any plan for added nuclear electricity needs to consider where the uranium to power these plants will come from. It also needs to consider how this uranium will be enriched to the required concentration of uranium-235.

(c) If the US can ramp up crude oil and natural gas production, this can perhaps counter this trend toward US and world recession. Unfortunately, recent US oil supply has not been ramping up; instead its production has been fairly flat. Natural gas production has actually been lower since February 2024. Plans have been made to rapidly ramp up US liquefied natural gas (LNG) exports, but these plans cannot work if the US natural gas supply is already decreasing.

(d) The US government has had an advantage in borrowing because the US dollar is the world’s reserve currency. As such, the US is, in some sense, the first borrower, pulling the rest of the world along. The US, by making its short term interest rates higher than those of many other countries, was able to largely escape recession 2023 and 2024. Additional investment was attracted to the US by these higher interest rates. But the US cannot follow this strategy indefinitely. For one thing, a high US dollar handicaps exports. For another, interest costs on government debt become burdensome.

(e) Donald Trump has plans to close inefficient parts of government. These changes, if enacted, will reduce “demand” within the economy because workers in these sectors will lose their jobs. Over the longer term, these changes might be beneficial, but over the short term, they are likely to be recessionary.

(f) It is difficult for the US to do much better than the rest of the world. If the rest of the world is in recession, the US will tend to head in that direction, as well.

[8] I expect more conflict in 2025, but today’s wars will not look much like World War I or World War II.

Today, not many countries are able to build huge fleets of fighter airplanes. Even building drones and bombs seems to require supply lines that extend around the world. So, instead, wars are being fought in non-military ways, such as with sanctions and tariffs.

I expect that this trend away from direct military conflict will continue, with more novel approaches such as internet interference and stealth damage to infrastructure taking place instead.

I do not expect that nuclear bombs will be used, even when there is direct conflict between powerful adversaries. For one thing, uranium in these bombs is needed for other purposes. For another, there is too much chance of retaliation.

[9] I expect many types of capital gains will be low in 2025.

The situation we are facing now is the opposite of the drop in long-term interest rates observed between 1981 and 2020, in Figure (2), above. This historical drop in interest rates made it possible for businesses to more easily finance new investments. It also made it possible for individual citizens to be able to afford more homes and cars. It should not be surprising that this period has been a time of rising stock market prices, especially in the United States.

The world’s economic problem is that it no longer has the tailwind of falling long-term interest rates. Instead, rising long-term interest rates are becoming a headwind. Home prices are un-affordably high for most potential buyers at today’s interest rates. A similar problem faces those hoping to purchase agricultural equipment and farmland at today’s high prices and high interest rates.

We should not be surprised if home and farm prices stabilize and begin to fall. Prices of shares of stock are likely to encounter similar headwinds. Prices of derivative investments may perform even worse than the shares themselves.

Recently, a great deal of the strength of the US market has been in a few stocks. Artificial Intelligence (AI) needs to very quickly provide a lot of benefit to the stock market as a whole for this to change. I cannot imagine this happening. With the US slipping toward recession, I expect that the US stock market will at best plateau in 2025.

[10] With less energy available and higher interest rates on government debt, I expect to see more government organizations disbanding.

It takes energy, directly and indirectly, to operate any kind of governmental organization. Eliminating governmental organizations is one way of saving energy. This is what happened when the central government of the Soviet Union collapsed in 1991. I would think that parallel kinds of changes could start happening in the next few years, in many parts of the world.

At some time, perhaps as soon as 2025, the European Union could collapse. If things are going badly for many member countries, they will be less willing to support the European Union with their tax revenues. Other organizations that seem like they could be in peril include NATO and the World Trade Organization.

In some ways, such shrinkage would be in parallel with Trump’s plan for eliminating unnecessary governmental organizations within the United States. All these organizations require energy; cutting their number would go some way toward reducing crude oil and other energy consumption.

[11] It is possible that the world economy will eventually get itself out of its apparent trend toward recession, but I am afraid this will happen long after 2025.

We know that the world economy tends to operate in cycles. We would like to believe that the apparent current down-cycle is just temporary, but we can’t know this for sure. Physics tells us that we need energy supplies of the right kind for any action that contributes to GDP. Running short of energy supplies is therefore a very worrisome condition.

We also know that there are major inefficiencies in current approaches. For example, oil extraction leaves much of the oil resource in place. In theory, AI could greatly improve extraction techniques.

We also know that uranium consumption is terribly inefficient. M. King Hubbert thought that nuclear energy using uranium had amazing potential, but most of this potential remains untapped. Perhaps AI could help in this regard, also. If nothing else, perhaps recycling spent fuel could be made less expensive and problematic.

Figure 4. Figure from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels.

We can’t know what lies ahead. There may be a “religious” ending to our current predicament that we are discounting that is actually the “right story.” Or there may be a “technofix” solution that allows us to avert collapse or catastrophe. But for now, how the current down-cycle will end remains a major cause for concern.

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