Art Berman is an oil industry expert worth listening to. I missed this Forbes article he published in July 2016. Thanks to Alice Friedemann for reviving it.
This is one of the better summaries I’ve read on the history of, and relationship between, energy and the economy.
Economic growth, without unsustainable and dangerous debt, is no longer possible. I explored the implications of no growth in this essay.
Berman wisely concludes by saying our best course of action is to face the beast.
Facing the beast would require us to break through our inherited denial of reality.
I wish but I do not expect.
Energy is the economy. Energy resources are the reserve account behind currency. The economy can grow as long as there is surplus affordable energy in that account. The economy stops growing when the cost of energy production becomes unaffordable. It is irrelevant that oil companies can make a profit at unaffordable prices.
Energy underlies and connects everything. We need energy to make things, transport and sell things and to transport ourselves so that we can work and spend. We need it to run our computers, our homes and our businesses. It takes energy to heat, cool, cook and communicate. In fact, it is impossible to think of anything in our lives that does not rely on energy.
When energy costs are low, the costs of doing business are correspondingly low. When energy prices are high, it is difficult to make a profit because the underlying costs of manufacture and distribution are high. This is particularly true in a global economy that requires substantial transport of raw materials, goods and services.
And this is precisely the problem with the almost universally held belief that technology will make all things possible, including making a finite resource like oil infinite. Technology has a cost that its evangelists forget to mention.
The reality is that technology allows us to extract tight oil from non-reservoir rock at almost 3 times the cost of high-quality reservoirs in the past. The truth is that we have no high-quality reservoirs left with sufficient reserves to move the needle on the high global appetite for oil. The consequence is that to keep consuming and producing as we always have will inevitably cost a lot more money. This is basic thermodynamics and not a pessimistic opinion about technology.
Renewable energy will be increasingly part of the landscape but its enthusiasts are also magical thinkers.
In 2015, renewables accounted for only 3% of U.S. primary energy consumption. No matter the costs nor determination to convert from fossil to renewable energy, a transition of this magnitude is unlikely in less than decades.
Solar PV and wind provide much lower net energy than fossil fuels and have limited application for transport–the primary use of energy– without lengthy and costly equipment replacement. The daunting investment cost becomes critically problematic in a deteriorating economy. Although proponents of renewable energy point to falling costs, more than half of all solar panels used in the U.S. are from China where cheap manufacturing is financed by unsustainable debt.
The future for oil prices and the global economy is frightening. I don’t know what beast slouches toward Bethlehem but I am willing to bet that it does not include growth.The best path forward is to face the beast. Acknowledge the problem, stop looking for improbable solutions that allow us live like energy is still cheap, and find ways to live better with less.