By Irv Mills: My Peak Oil Journey

Irv Mills

Irv Mills today published a very nice history of peak oil in which he summarizes what has occurred to date, and explains how his understanding of the relationship between energy and the economy has evolved and improved over time.

Mills’ essay is clear, accurate, and accessible. I recommend it as an excellent primer on peak oil.

Mills observes that oil consumption in recent years has grown about 1.7% per year despite little or no real growth in the economy. He speculates that the extra energy is being consumed by the oil industry to produce oil that is now hard, and getting harder, to extract. I suspect he’s right and recently wrote about this red queen phenomenon here.

Mills sees economic problems in our future but also expects some surprises. I agree. As readers know, I am fascinated by the fact that we collectively deny the reality of peak oil, despite it being, by far, the most serious short-term threat to civilization. My hunch is that we will never accept the reality of peak oil. Something else will happen that we can blame for our economic woes. Like war. To admit that growth is over due to nature being more powerful than our hubris, and that we totally screwed up by ignoring obvious facts, is a pill too big to swallow for our egos.

https://theeasiestpersontofool.blogspot.com/2018/06/autobiographical-notes-part-4-my-peak.html

As that average EROEI declines toward about 15, economic growth grinds to a halt and it becomes difficult to raise capital to start new ventures and to maintain existing infrastructure. Below 15 a modern industrial civilization quits working. Because this is a weighted average, choosing to produce more energy from low EROEI sources makes things worse while temporarily seeming to make them better. It has been estimated that the current average EROEI of the world economy is around 11. Of course some lucky countries are doing much better than that.

But because of our “lowest hanging fruit first” approach, EROEI continues to decline. Real economic growth appears to have stopped in the 1990s, with governments using clever new ways of calculating gross domestic product, and unemployment and cost of living statistics to make things look better in the short run. And low interest rate policies to encourage lots of borrowing and keep the economy growing, again, in the short run.

 

The major oil companies were hurt by low prices too, and cut back on their investment on discovery in order to save money. This has left us in a very bad situation as far as oil supply goes over the next few years. Trillions of dollars would have to be spent on discovery to catch up with demand. It seems to some of us that there is no sweet spot where oil prices are low enough to keep the economy growing and high enough to make the oil business profitable.

In any case, it seems unlikely that there are actually sufficient oil resources out there even if we could find the money to spend on discovery.

On a Red Queen: Diesel to get Diesel

Everything you depend on to survive, including food, depends on diesel.

Look with your own eyes at how much diesel it takes to get diesel today.

The US has already fracked about 2 million of these wells, and because they deplete quickly to nothing in only a few years, about 13,000 new wells must be fracked every year, just to tread water.

The red queen is eating a bigger and bigger share of your honey.

Now you understand why debt is growing exponentially, despite most people feeling poorer.

What you may not know is that almost all of these companies are losing money. Mainly because it takes so much diesel to get diesel.  They have survived to date because investors are pouring money into them to make sure they don’t miss out on the technology miracle that is making the US “energy independent”.

Use your own eyes to decide how much of this miracle is from technology, and how much is from diesel brute force.

Now close your eyes and visualize the Canadian tar sands. It’s almost the same story.

Now you understand why, when common sense finally returns to the stock market, the impact on our diesel dependent lifestyles will be dramatic, rather than gentle.

If, on the other hand, the price of oil increases enough to make these companies profitable, many citizens and businesses, who are already struggling to make ends meet, will be forced to cut back on the amount of oil they use, which will make them less productive, which will cause the economy to contract, which will cause the stock market to contract, which will cause many of these fracking companies to go bankrupt, which will kill the red queen, which will cause the total quantity of fracked oil to deplete at about 30% per year, which will make it much much harder to make ends meet, and eat.

Now you understand the nature of our predicament.

As with climate change, we do not discuss as adults the net energy red queen.

We simply deny the problem exists.

 

 

 

Here is the latest data from Art Berman that re-confirms most of the above.

By Jean-Marc Jancovici: Can we save energy, jobs and growth at the same time?

Thanks to Mike Stasse for finding this excellent presentation by Jean-Marc Jancovici on the relationship between energy, employment, and income.

I am not yet familiar with other work by Jancovici, but he seems to be a French version of Tom Murphy and Tim Garrett, which is a very good thing, because their quality of intellect, on the issues that really matter to civilization, are scarce.

Jancovici, an engineer, in 90 minutes, crisply demolishes 100 years of theories cherished by the “profession” of economics.

Idiots, all of them.

The depletion of natural resources, with oil to start with, and the need for a stable climate, will make it harder and harder to pursue economic growth as we know it. It has now become urgent to develop a new branch of economics which does not rely on the unrealistic assumption of a perpetual GDP increase. In this Colloquium, I will discuss a “physical” approach to economics which aims at understanding and managing the scaling back of our world economy.

Biography : Jean-Marc Jancovici, is a French engineer who graduated from École Polytechnique and Télécom, and who specializes in energy-climate subjects. He is a consultant, teacher, lecturer, author of books and columnist. He is known for his outreach work on climate change and the energy crisis. He is co-founder of the organization “Carbone 4” and president of the think tank “The Shift Project”.

 

Amazed and Worried

World C+C Production

Sapient citizens should be both amazed and worried about how world oil production continues to increase.

Amazed because ceteris paribus, production should have begun its inevitable decline years ago.

The “other thing not equal” and not anticipated by many, including myself, has been near free debt that has permitted citizens to afford more expensive oil, and has permitted oil companies to apply technology (aka energy) to squeeze oil out of source rock, while losing money.

Worried because most of this new debt can not and will not be repaid, unless we find another planet of resources to fuel growth, which guarantees a severe economic reset at some point.

Worried because the technology (aka energy) oil companies have used to increase flows, while losing money, guarantees a severe oil production cliff, rather than a gentle decline.

Where are the adults?

By Ron Patterson: OPEC April Production Data

Q: Karen Fremerman says:
World supply just keeps going up. I am a long time lurker on this blog and can’t believe how Saudi Arabia just keeps pumping at these levels. I read Matthew Simmon’s “Twilight in the Desert” 10 years ago and it seemed like those high and increasing water cuts would make their peak have happened by now. When will declines ultimately overwhelm increases from other fields in Saudi Arabia and the world? And are we just making a world of hurt for ourselves because we are doing so many extraordinary measures to keep up this rate that fields will just crash and we will have a Seneca Cliff as Ugo Bardi says?
Thanks!
Karen

A1: George Kaplan says:
They are continually adding new wells and offshore are replacing all wellheads with artificial lift. Khurais expansion was due about now but I haven’t seen anything in the news. They aren’t adding new water injection or handling capacity which is likely the limit overall, and in terms of production capacity their reserves are irrelevant without new facilities to overcome those limits. Like you I’ve been expecting some sort of decline but they seem to be hanging on. There have been a couple of periods in the recent past where they looked like they’ve been hitting a decline curve before new surface facilities have been brought on. Their active drilling rigs have been steadily falling over the past year or so and so have their stocks. If most of their wells are now horizontal then when decline starts it will go really quickly.

A2: Ron Patterson says:
I worked in Saudi Arabia from 1980 to 1985. All the time I was there I never saw an artificial lift well. Well, at least I saw no nodding donkeys. There may have been downhole electric pumps, I have no idea, but I never heard of them when I was there. But back then everything was pressure driven. Water injection kept the pressure up and they just opened the taps and the oil just came out. No need for artificial lift.

By Gail Tverberg: How the Economy Works as It Reaches Energy Limits — An Introduction for Actuaries and Others

 

Gail Tverberg

Gail Tverberg here summarizes years of her research into the relationships between energy and the economy.

While there are no new ideas from Tverberg here, a complex and important topic is nicely repackaged for consumption by non-experts.

This essay is thus an excellent primer for people seeking a coherent story to explain what’s going on in the world today, and what we can expect in the future.

As an aside, I’m pleased to see debt playing the larger role it deserves in her story.

https://ourfiniteworld.com/2018/05/11/how-the-economy-works-as-it-reaches-energy-limits-an-introduction-for-actuaries-and-others/

Financial regulators would like to think that they determine how the economy works. In fact, the operation of the economy is largely determined by the laws of physics.

By Nate Hagens: Where are We Going?

Nate Hagens

Nate Hagens followed up his recent talk with a very nice essay in which he explains our predicament using his rare and broad understanding of the issues.

The possible outcomes for our near-term future fall on a curve of probabilities ranging from an optimistic gentle decline to a pessimistic zombie apocalypse collapse.

Nate leans to the optimistic side of the curve and makes a good case for it here. His most persuasive argument, for me, is that we use much more energy and materials than we need to have pleasant lives, and so a 30% haircut, which Nate thinks will happen soon, need not be cause for undo concern.

I lean more to the pessimistic side because of the instability we have created by using extreme debt to kick the can, the Seneca Effect on resource depletion, accelerating decline of our ecosystem (especially but not limited to climate change), nasty human nature in times of scarcity, and our evolved tendency to deny unpleasant realities and thus near certainty we will blame the wrong actors.

I hope Nate’s right but I would not put money on it.

http://www.resilience.org/stories/2018-05-08/where-are-we-going/

We cannot know the future, but we have reasonable confidence of what it will not be.  The peak in fossil sunlight flow rates and resultant higher costs will mean major changes in our lifetimes. We can be reasonably sure the average energy/material throughput for Americans – and global citizens, particularly in advanced economies, will decline in coming decades.  It’s important to point out that a 30% drop in material wealth per capita (for those in the United States and Canada) though sounding draconian, brings us back to 1993 levels – a 50% drop would bring us back to 1977 levels– both periods nobody considers economically challenging.  How we respond to this energy descent as individuals and as a culture will be a deciding moment in our history.

All the ‘cultural’ and ‘individual’ observations above coalesce to a fine point: we are capable of much more, but are unlikely to alter our current trajectory until we have to. And when we add in the economy and environmental points: we will soon have to.  Recognizing this, the next step is urgently discussing and cataloguing what initiatives might be worked on by small groups using intelligent foresight nationwide.

Given we have ~100:1 exosomatic surplus buffer, there remain a great deal of benign, and even excellent futures still on the table.  But they won’t arrive without effort.  The world isn’t irretrievably broken, the Great Simplification has barely started, and there are quite a few people who are discovering exactly the shape of our predicaments, and the nature of the things which could substantially change them.

NB: While I believe education itself is insufficient for major change, it is still a necessary first step so that pro-social engaged citizens work towards feasible and desirable goals and react to events in more rational ways. My own goal with this content is threefold:

  • Educate and inspire would-be catalysts and small groups working on better futures to integrate a more systemic view of reality
  • Empower individuals to make better personal choices on navigating and thriving during the Great Simplification coming our way
  • Change what is accepted in our cultural conversation to be more reality based

 

By Nate Hagens: Contrasts and Continuums of the Human Predicament

Here is this year’s annual Earth Day talk by Nate Hagens.

My introduction to last year’s talk by Nate is still valid:

I used to preface Nate’s talks by saying he provides the best big picture view of our predicament available anywhere.

While still true, I think Nate may now be the only person discussing these issues in public forums.

Everyone else seems to have retired to their bunkers and gone quiet.

If you only have an hour this year to devote to understanding the human predicament and what needs to be done, this may be the best way to spend it.