Tag Archives: oil price

Today’s Energy Predicament – A Look at Some Charts

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Today’s energy predicament is a strange situation that most modelers have never really considered. Let me explain some of the issues I see, using some charts.

[1] It is probably not possible to reduce current energy consumption by 80% or more without dramatically reducing population.

A glance at energy consumption per capita for a few countries suggests that cold countries tend to use a lot more energy per person than warm, wet countries.

Figure 1. Energy consumption per capita in 2019 in selected countries based on data from BP’s 2020 Statistical Review of World Energy.

This shouldn’t be a big surprise: Our predecessors in Africa didn’t need much energy. But as humans moved to colder areas, they needed extra warmth, and this required extra energy. The extra energy today is used to build sturdier homes and vehicles, to heat and operate those homes and vehicles, and to build the factories, roads and other structures needed to keep the whole operation going.

Saudi Arabia (not shown on Figure 1) is an example of a hot, dry country that uses a lot of energy. Its energy consumption per capita in 2019 (322 GJ per capita) was very close to that of Norway. It needs to keep its population cool, besides running its large oil operation.

If the entire world population could adopt the lifestyle of Bangladesh or India, we could indeed get our energy consumption down to a very low level. But this is difficult to do when the climate doesn’t cooperate. This means that if energy usage needs to fall dramatically, population will probably need to fall in areas where heating or air conditioning are essential for living. Continue reading →

Easily overlooked issues regarding COVID-19

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We read a lot in the news about the new Wuhan coronavirus and the illness it causes (COVID-19), but some important points often get left out.

[1] COVID-19 is incredibly contagious.

COVID-19 transmits extremely easily from person to person. Interpersonal contact doesn’t need to be very long; a taxi driver can get the virus from a passenger, for example. The virus may be transmissible even before an infected person develops symptoms. It may also be transmissible for a few days after a person seems to be over the virus; it is possible to get positive virus tests, even after symptoms disappear. Some people may have the disease, but never show symptoms.

[2] The virus likely remains active on inanimate surfaces such as paper, plastic, or metal for many days.

There haven’t been tests on the COVID-19 virus per se, but studies on similar viruses suggest that human pathogens may remain infectious for up to eight days. Some viruses that only infect animals can survive for more than 28 days. China is reported to be destroying paper currency from the hardest hit area, because people do not want to accept money which may have viruses on it. Clearly, surfaces in airplanes, trains and buses may also harbor viruses, long after a passenger with the virus has left, unless they have been thoroughly wiped down with disinfectant. Continue reading →

Why stimulus can’t fix our energy problems

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

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

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

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

A Different View of Venezuela’s Energy Problems

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It would be easy to write a story about Venezuela’s energy problems and, in it, focus on the corruption and mismanagement that have taken place. This would make it look like Venezuela’s problems were different from everyone else’s. Taking this approach, it would be easy to argue that the problems wouldn’t have happened, if better leaders had been elected and if those leaders had chosen better policies.

I think that there is far more behind Venezuela’s financial and energy problems than corruption and mismanagement.

As I see the story, Venezuela realized that it had huge oil resources relative to its population, back as early as the 1920s. While these oil resources are substantial, the country misestimated how high a standard of living that these resources could support. To try to work around the issue of setting development goals too high, the country chose the path of distributing the benefits of oil exports in an almost socialistic manner. This socialistic approach, plus increased debt, hid the problem of a standard of living that could not really be supported for many years. Recent problems in Venezuela show that these approaches cannot be permanent solutions. In fact, it seems likely that Venezuela will be one of the first oil-exporting nations to collapse.

Continue reading →

Have We Already Passed World Peak Oil and World Peak Coal?

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Most people expect that our signal of an impending reduction in world oil or coal production will be high prices. Looking at historical data (for example, this post and this post), this is precisely the opposite of the correct price signal. Oil and coal supplies decline because prices fall too low for producers. These producers make voluntary cutbacks because the prices they receive fall below their cost of production. There often are supply gluts at the same time.

This strange situation arises because prices must be high enough for the producers at the same time that goods and services made by oil (and other energy products) are inexpensive enough for consumers to afford. There is a two way battle taking place:

(1) Prices producers require tend to rise over time, because of depletion. The easiest to extract portion of any resource (such as oil, coal, copper, or lithium) tends to be removed first. What is left tends to be deeper, lower quality, or otherwise more difficult to extract cheaply.

(2) Prices consumers can afford for discretionary goods (such as cell phones and automobiles) tend to fall for a combination of reasons:

  • Wages of many workers fall because of competition from lower cost labor in other countries.
  • Some jobs are eliminated through the use of computers or robots.
  • Young people are increasingly being required to pay for higher education (beyond that which is provided free), leaving many with loans to repay, reducing their discretionary income.
  • Changes to US healthcare law (mostly starting January 1, 2014) lead to required health insurance premiums. While some citizens find cost savings in this approach, healthy young people often experience cutbacks in discretionary income as a result.
  • Rents and home prices keep rising faster than incomes.

When the discretionary income of the many non-elite workers of the world falls, they buy fewer finished goods and services. Finished goods and services are manufactured using commodities of many kinds, including oil, coal, copper, iron ore, and fresh water. When discretionary demand falls, commodity prices tend to fall. This is the problem we are encountering now. It tends to cause the prices of many commodities to fall below the cost of production. Eventually, producers decide to quit because production is no longer profitable. This is the issue that leads to peak oil, coal or copper.

Figure 1. Illustration showing why falling affordability creates a conflict between supply and demand.

If the Affordability Price Clash Mostly Affects Non-Elite Workers, Does It Matter? Continue reading →