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The world’s self-organizing economy can be expected to act strangely, as energy supplies deplete

The world’s self-organizing economy can be expected to act strangely, as energy supplies deplete

Figure 1. Chart showing average annual Brent-equivalent oil prices in 2021$ based on data from BP’s 2022 Statistical Review of World Energy, together with bars showing periods when prices seemed to be favorable to producers.

We are now in a period of price conflict. Oil and other energy prices have remained too low for producers since at least mid-2014. At the same time, depletion of fossil fuels has led to higher costs of extraction. Often, the tax needs of governments of oil exporting countries are higher as well, leading to even higher required prices for producers if they are to continue to produce oil and raise their production. Thus, producers truly require higher prices.

Governments of countries affected by this inflation in price are quite disturbed: Higher prices for energy products mean higher prices for all goods and services. This makes citizens very unhappy because wages do not rise to compensate for this inflation. Prices today are high enough to cause significant inflation (about $107 per barrel for Brent oil (Europe) and $97 for WTI (US)), but still not high enough to satisfy the high-price needs of energy producers.

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The world has a major crude oil problem; expect conflict ahead

The world has a major crude oil problem; expect conflict ahead

Media outlets tend to make it sound as if all our economic problems are temporary problems, related to Russia’s invasion of Ukraine. In fact, world crude oil production has been falling behind needed levels since 2019. This problem, by itself, encourages the world economy to contract in unexpected ways, including in the form of economic lockdowns and aggression between countries. This crude oil shortfall seems likely to become greater in the years ahead, pushing the world economy toward conflict and the elimination of inefficient players.

To me, crude oil production is of particular importance because this form of oil is especially useful. With refining, it can operate tractors used to cultivate crops, and it can operate trucks to bring food to stores to sell. With refining, it can be used to make jet fuel. It can also be refined to make fuel for earth moving equipment used in road building. In recent years, it has become common to publish “all liquids” amounts, which include liquid fuels such as ethanol and natural gas liquids. These fuels have uses when energy density is not important, but they do not operate the heavy machinery needed to maintain today’s economy.

In this post, I provide an overview of the crude oil situation as I see it. In my analysis, I utilize crude oil production data by the US Energy Information Agency (EIA) that has only recently become available for the full year of 2021. In some exhibits, I also make estimates for the first quarter of 2022 based on preliminary information for this period.

[1] World crude oil production grew marginally in 2021.

…click on the above link to read the rest of the article…

No one will win in the Russia-Ukraine conflict

No one will win in the Russia-Ukraine conflict

Most people have a preconceived notion that there will be a clear winner and loser from any war. In their view, the world economy will go on, much as before, after the war is “won” by one side or the other. In my view, we are basically dealing with a no-win situation. No matter what the outcome, the world economy will be worse off after the fighting stops.

The problem the world economy is up against is the depletion of many kinds of resources simultaneously. This depletion is made worse by rising population, meaning that the resources available need to provide an adequate living for an increasing number of world inhabitants. Because of depletion, the world economy is reaching a point where it can no longer grow in the way it has in the past. Inflation, food shortages and rolling blackouts are likely to become increasing problems in many parts of the world. Eventually, the population is likely to fall.

We are living in a world that is beginning to behave like the players scrambling for seats in a game of musical chairs. In each round of a musical chairs game, one chair is removed from the circle. The players in the game must walk around the outside of the circle. When the music stops, all the players scramble for the remaining chairs. Someone gets left out.

Figure 1. Circle of chairs arranged for a game of musical chairs. Source

In this post, I will try to explain some of the issues.

[1] In a world with inadequate resources relative to population, conflicts are likely to become increasingly common.

…click on the above link to read the rest of the article…

Limits to Green Energy Are Becoming Much Clearer

Limits to Green Energy Are Becoming Much Clearer

We have been told that intermittent electricity from wind and solar, perhaps along with hydroelectricity, can be the basis of a green economy. Things are increasingly not working out as planned, however. Natural gas or coal used for balancing the intermittent output of renewables is increasingly high-priced or not available. It is becoming clear that modelers who encouraged the view that a smooth transition to wind, solar, and hydroelectric is possible have missed some important points.

Let’s look at some of the issues:

[1] It is becoming clear that intermittent wind and solar cannot be counted on to provide adequate electricity supply when the electrical distribution system needs them.

Early modelers did not expect that the variability of wind and solar would be a huge problem. They seemed to believe that, with the use of enough intermittent renewables, their variability would cancel out. Alternatively, long transmission lines would allow enough transfer of electricity between locations to largely offset variability.

In practice, variability is still a major problem. For example, in the third quarter of 2021, weak winds were a significant contributor to Europe’s power crunch. Europe’s largest wind producers (Britain, Germany and France) produced only 14% of installed capacity during this period, compared with an average of 20% to 26% in previous years. No one had planned for this kind of three-month shortfall.

In 2021, China experienced dry, windless weather so that both its wind and hydroelectric power were low. The country found it needed to use rolling blackouts to deal with the situation. This led to traffic lights failing and many families needing to eat candle-lit dinners.

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2022: Energy limits are likely to push the world economy into recessionIn my view, there are three ways a growing economy can be sustained:

2022: Energy limits are likely to push the world economy into recessionIn my view, there are three ways a growing economy can be sustained:

  1. With a growing supply of cheap-to-produce energy products, matched to the economy’s energy needs.
  2. With growing debt and other indirect promises of future goods and services, such as rising asset prices.
  3. With growing complexity, such as greater mechanization of processes and supply lines that extend around the world.

All three of these approaches are reaching limits. The empty shelves some of us have been seeing recently are testimony to the fact that complexity is reaching a limit. And the growth in debt looks increasingly like a bubble that can easily be popped, perhaps by rising interest rates.

In my view, the first item listed is critical at this time: Is the supply of cheap-to-produce energy products growing fast enough to keep the world economy operating and the debt bubble inflated? My analysis suggests that it is not. There are two parts to this problem:

[a] The cost of producing fossil fuels and delivering them to where they are needed is rising rapidly because of the effects of depletion. This higher cost cannot be passed on to customers, without causing recession. Politicians will act to keep prices low for the benefit of consumers. Ultimately, these low prices will lead to falling production because of inadequate reinvestment to offset depletion.

[b] Non-fossil fuel energy products are not living up to the expectations of their developers. They are not available when they are needed, where they are needed, at a low enough cost for customers. Electricity prices don’t rise high enough to cover their true cost of production. Subsidies for wind and solar tend to drive nuclear electricity out of business, leaving an electricity situation that is worse, rather than better. Rolling blackouts can be expected to become an increasing problem.

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Is it possible that the world is approaching end times?

Is it possible that the world is approaching end times?

I frequently write that the world economy is, in physics terms, a dissipative structure that is powered by energy. It can grow for a time, but eventually it reaches limits of many kinds. Ultimately, it can be expected to stop growing and collapse.

It seems to me that the world economy is showing signs that it has reached a turning point. Economic growth stopped in 2020 and is having trouble restarting in 2021. Fossil fuel energy of all types (oil, coal and natural gas) is in short supply, relative to the world’s huge population. Ultimately, this inadequate energy supply can be expected to pull the world economy toward collapse.

The world economy doesn’t behave the way most people would expect. Standard modeling approaches miss the point that economies require adequate supplies of energy products of the right kinds, provided at the right times of day and year, if they are to keep from collapsing. Shortages are not necessarily marked by high prices; prices that are too low for producers will bring down the energy supply quickly. A collapse may occur due to inadequate demand; in fact, such a scenario is described in Revelation 18.

As strange as it may seem, we may be approaching what some of us would think of as end times, if our economy collapses for lack of cheap-to-produce energy supplies. In this post, I will try to explain what is happening.

[1] In some ways, the self-organizing economy is like a child’s building toy that, with the use of human energy, can be built up to higher and higher levels.

…click on the above link to read the rest of the article…

Spike in energy prices suggests that sharp changes are ahead

Spike in energy prices suggests that sharp changes are ahead

An analysis of what is going terribly wrong in the world economy

The world economy requires stability. People living in the world economy need stability, as well. They need food every day and a place to live. Children need a home situation that they can count on.

Back in the 1950 to 1979 era, when energy supplies of many kinds were growing rapidly, it was possible to build stability into the economic system: Jobs with a company were often long-time careers; pensions after retirement were offered; electricity was sold through regulated “utilities” that charged prices that wrapped in long-term maintenance of the electric grid and the cost of fuel, among other things.

But as high energy prices hit in the 1970s, the system became more and more strained. The mood changed. Margaret Thatcher became the Prime Minister of the UK in 1979, and Ronald Reagan became President of the United States in 1981. Under their leadership, debt was increasingly used to cover longer-term costs, and competition was encouraged. A person might say that a move toward greater complexity, but less stability, of the economic system had begun.

Now, through several iterations, the economy has become increasingly complex, with less and less redundancy to provide stability. The energy price spike that is being experienced today is a warning that something is very, very wrong. As I see the situation, the trend toward complexity has gone too far; the economic system is starting to break down. Sharp changes appear to be ahead. The world economy is shifting into contraction mode, with more and more parts of the system failing.

…click on the above link to read the rest of the article…

Could we be hitting natural gas limits already?

Could we be hitting natural gas limits already?

Many countries have assumed that natural gas imports will be available for balancing electricity produced by intermittent wind and solar, whenever they are needed. The high natural gas import prices recently being encountered in Europe, and especially in the UK, appear to be an indication of an underlying problem. Could the world already be hitting natural gas limits?

One reason few people expect a problem with natural gas is because of the immense quantities reported as proven reserves. For all countries combined, these reserves at December 31, 2020 were equal to 48.8 times world natural gas production in 2020. Thus, in theory, the world could continue to produce natural gas at the current rate for almost 50 years, without even trying to to find more natural gas resources.

Ratios of natural gas reserves to production vary greatly by country, giving a hint that the indications may be unreliable. High reserves make an exporting country appear to be dependable for many years in the future, whether or not this is true.

Figure 1. Ratio of natural gas reserves at December 31, 2020, to natural gas production for the year 2020, based on trade data of BP’s 2021 Statistical Review of World Energy. Russia+ is the Commonwealth of Independent States. It includes Russia and the countries to the south of Russia that were included in the former Soviet Union.

As I see the issue, these reserves are unlikely to be produced unless world oil prices rise to a level close to double what they are today and stay at such a high level for several years. I say this because the health of the oil and gas industries are closely intertwined…

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To Be Sustainable, Green Energy Must Generate Adequate Taxable Revenue

To Be Sustainable, Green Energy Must Generate Adequate Taxable Revenue

What allows any type of energy to be sustainable? I would argue that one of the requirements for sustainability is adequate production of taxable revenue. Company managements depend upon taxable revenue for many purposes, including funding new investments and paying dividends to shareholders. Governments depend upon taxable income to collect enough taxes to provide infrastructure and programs for their growing populations.

Taxable income is a major way that “net energy” is transferred to future investment and to the rest of the economy. If this form of net energy is too low, governments will collapse from lack of funding. Energy production will fall from lack of reinvestment. This profitability needs to come from the characteristics of the energy products, allowing more goods and services to be produced efficiently. This profitability cannot be created simply by the creation of more government debt; the rise in the price of energy is tied to the affordability of goods, particularly the goods required by low-income people, such as food. This affordability issue tends to put a cap on prices that can be charged for energy products.

It seems to me that Green Energy sources are held to far too low a standard. Their financial results are published after subsidies are reflected, making them look profitable when, in reality, they are not. This is one of the things that makes many people from the financial community believe that Green Energy is the solution for the future.

In this post, I will discuss these ideas further. A related issue is, “Which type of oil production fell most in the 2018-2021 period?” Many people had expected that perhaps high-cost energy production would fall. Strangely enough, the production that fell most was that of OPEC oil exporters. These oil exporters often have a very low cost of energy production. The production of US oil from shale also fell.

…click on the above link to read the rest of the article…

How Energy Transition Models Go Wrong

How Energy Transition Models Go Wrong

I have written many posts relating to the fact that we live in a finite world. At some point, our ability to extract resources becomes constrained. At the same time, population keeps increasing. The usual outcome when population is too high for resources is “overshoot and collapse.” But this is not a topic that the politicians or central bankers or oligarchs who attend the World Economic Forum dare to talk about.

Instead, world leaders find a different problem, namely climate change, to emphasize above other problems. Conveniently, climate change seems to have some of the same solutions as “running out of fossil fuels.” So, a person might think that an energy transition designed to try to fix climate change would work equally well to try to fix running out of fossil fuels. Unfortunately, this isn’t really the way it works.

In this post, I will lay out some of the issues involved.

[1] There are many different constraints that new energy sources need to conform to.

These are a few of the constraints I see:

  • Should be inexpensive to produce
  • Should work with the current portfolio of existing devices
  • Should be available in the quantities required, in the timeframe needed
  • Should not pollute the environment, either when created or at the end of their lifetimes
  • Should not add CO2 to the atmosphere
  • Should not distort ecosystems
  • Should be easily stored, or should be easily ramped up and down to precisely match energy timing needs
  • Cannot overuse fresh water or scarce minerals
  • Cannot require a new infrastructure of its own, unless the huge cost in terms of delayed timing and greater materials use is considered.

…click on the above link to read the rest of the article…

Don’t expect the world economy to resume its prior growth pattern after COVID-19

Don’t expect the world economy to resume its prior growth pattern after COVID-19

Most people seem to think that the world economy is going through a temporary disruption, caused by a novel coronavirus. As soon as COVID-19 goes away, they expect the economy will be back to normal. I think that this assessment is overly optimistic. The way I see the situation, the world economy was already having severe growth problems, caused indirectly by resource problems, even before COVID-19 hit.

In a growing world economy, a person might expect that workers would be getting richer, so that they could afford an increasing quantity of goods and services. What we really see is something very different. The number of new automobiles sold was falling in many major countries long before COVID-19 hit, even as population was generally rising. Clearly, something was seriously wrong.

Figure 1. Auto sales for selected countries, based on data of CarSalesBase.com.

As I see the situation, the world has a resource problem. Resources of many kinds, including fresh water, energy products, and minerals of many kinds were becoming more difficult (and expensive) to extract, even before 2020. Substitution might have worked if the problem were only one or two resources, but not with several major resources. Cutting back was the only answer.

Thus, the shutdowns for COVID-19 came at a convenient time, allowing economies that were already doing poorly to shut down. Needless to say, there was no world leader who was willing to explain this hidden issue to the world population. Instead, world leaders used standardized code words such as “we need to move to renewables” or “we need to reduce carbon use by 2050 to prevent climate change.” Unfortunately, the ability to move to alternatives in this time frame is simply an illusion, allowing world leaders to avoid mentioning the serious resource issues that the world economy is really facing.

…click on the above link to read the rest of the article…

Today’s Contemplation: Collapse Cometh XV

Rome, Italy (1984) Photo by author

Energy. It’s at the core of everything we do. Everything. Yet we take it for granted and rarely think about it and what the finiteness of our various energy sources means for us.

As Gail Tverberg of Our Finite World concludes in a recent thought-provoking article that should be read widely: “Needless to say, the powers that be do not want the general population to hear about issues of these kinds. We find ourselves with narrower and narrower news reports that provide only the version of the truth that politicians and news media want us to read.”

Instead of having a complex and very necessary discussion about the unsustainable path we are on (especially as it pertains to chasing the perpetual growth chalice) and attempting to mitigate the consequences of our choices, we are told all is well, that ‘science’, ‘human ingenuity’, and ‘technology’ will save the day, and we can maintain business-as-usual with just some minor ‘tweaks’ and/or a ‘green/clean’ energy transition. Pre/history, physics, and biology would suggest otherwise.

Here is my relatively long comment on a Tyee article discussing the International Energy Agency’s recent report that calls on all future fossil fuel projects to be abandoned and drastic reductions in demand in order to avoid irreparable climate change damage to our planet. The answer, however, will not be found in ‘renewable’ energy and related technologies as many contend because the underlying and fundamental issue of overshoot has been conveniently left out of the story.

Having followed the ‘energy’ dilemma for more than a decade I’ve come to better understand the complexities, nuances, and scheming that it entails; not all mind you, not by a long shot, but certainly better than the mainstream narratives provide…

…click on the above link to read the rest of the article…

How the World’s Energy Problem Has Been Hidden

How the World’s Energy Problem Has Been Hidden

We live in a world where words are very carefully chosen. Companies hire public relations firms to give just the right “spin” to what they are saying. Politicians make statements which suggest that everything is going well. Newspapers would like their advertisers to be happy; they certainly won’t suggest that the automobile you purchase today may be of no use to you in five years.

I believe that what has happened in recent years is that the “truth” has become very dark. We live in a finite world; we are rapidly approaching limits of many kinds. For example, there is not enough fresh water for everyone, including agriculture and businesses. This inadequate water supply is now tipping over into inadequate food supply in quite a few places because irrigation requires fresh water. This problem is, in a sense, an energy problem, because adding more irrigation requires more energy supplies used for digging deeper wells or making desalination plants. We are reaching energy scarcity issues not too different from those of World War I, World War II and the Depression Era between the wars.

We now live in a strange world filled with half-truths, not too different from the world of the 1930s. US newspapers leave out the many stories that could be written about rising food insecurity around the world, and even in the US. We see more reports of conflicts among countries and increasing gaps between the rich and the poor, but no one explains that such changes are to be expected when energy consumption per capita starts falling too low.

The majority of people seem to believe that all of these problems can be fixed simply by increasingly taxing the rich and using the proceeds to help the poor…

…click on the above link to read the rest of the article…

Where Energy Modeling Goes Wrong

Where Energy Modeling Goes Wrong

There are a huge number of people doing energy modeling. In my opinion, nearly all of them are going astray in their modeling because they don’t understand how the economy really operates.

The modeling that comes closest to being correct is that which underlies the 1972 book, The Limits to Growth by Donella Meadows and others. This modeling was based on physical quantities of resources, with no financial system whatsoever. The base model, shown here, indicates that limits would be reached a few years later than we actually seem to be reaching them. The dotted black line in Figure 1 indicates where I saw the world economy to be in January 2019, based on the limits we already seemed to be reaching at that time.

Figure 1. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil,” with dotted line added corresponding to where I saw the world economy to be in January 2019, based on how the economy was operating at that time.

The authors of The Limits to Growth have said that their model cannot be expected to be correct after limits hit (which is about now), so even this model is less than perfect. Thus, this model cannot be relied upon to show that population will continue to rise until after 2050.

Many readers are familiar with Energy Return on Energy Invested (EROEI) calculations. These are favorites of many people following the Peak Oil problem. A high ratio of Energy Returned to Energy Invested is considered favorable, while a low ratio is considered unfavorable. Energy sources with similar EROEIs are supposedly equivalent. Even these similarities can be misleading. They make intermittent wind and solar appear far more helpful than they really are.

…click on the above link to read the rest of the article…

Is Covid-19 providing cover for Jay Hanson’s Society of Sloth?

Is Covid-19 providing cover for Jay Hanson’s Society of Sloth?

Gail Tverberg made a comment today that rings true and motivated me to write about something I’ve been mulling for a while…

https://ourfiniteworld.com/2020/12/23/2020-the-year-things-started-going-badly-wrong/comment-page-24/#comment-274042

I think the reaction to COVID-19 is part of how a self-organizing system works. People were looking for a reason to cut back/shut down. The illness provided this.

I do not believe in most conspiracy theories, but I do believe that crises are frequently used to implement plans that would be impossible without a crisis. The responses to Iraq’s weapons of mass destruction, 9/11, and the 2008 GFC are good modern examples.

Perhaps the virus has provided (mostly subconscious) cover for:

  • citizens tired of commuting 2 hours a day to a stressful job so they could keep up with their neighbor’s latest unnecessary status symbol purchase
  • citizens who intuited they should reduce discretionary spending and pay down credit card debt, which interestingly declined in 2020, rather than increasing as it did during the 2008 GFC
  • leaders that sensed we should voluntarily throttle back, because we’d soon be forced by limits to growth
  • leaders that understood we needed to rapidly reduce CO2 emissions, and the only way to achieve this is by contracting the economy
  • leaders that needed an excuse to restrict freedoms to maintain civil order in preparation for a significant contraction of our energy/economic system
  • central banks that understood we had hit limits to growth and that needed an excuse for massive corporate bailouts to prevent a catastrophic economic collapse, and for MMT to keep citizens fed

Perhaps this helps to explain why our responses to the virus have not been intelligent or optimal:

  • effective means of containing the spread were ignored or procrastinated in the crucial early days

…click on the above link to read the rest of the article…

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