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 Tom Murphy: The Future Needs an Attitude Adjustment

Peak Oil

I’m resurrecting a 2011 essay by one of my favorite minds on the planet.

Tom Murphy is a brilliant physicist with an impressive catalog of essays on energy related issues. If you prefer to watch rather than read, then this video is a favorite of mine.

After searching for a solution to our energy predicament and concluding that we are in serious trouble, and that we are being extremely unwise by not planning for a world with less, Tom Murphy went quiet. As have many other great minds. A worrying sign.

https://dothemath.ucsd.edu/2011/12/the-future-needs-an-attitude-adjustment/

Here are a few excerpts but the whole thing is worth a read.

Over the years, my diligent observation of people has led me to a deep insight: people want stuff. I know—bear with me as I support my argument. Donald Trump. Okay, I think I’ve covered it. No, it’s true. On the whole, we don’t seem to be satiable creatures. Imagine the counter-examples: “No thanks, boss. I really don’t need a raise.” “I’m done with this money—anybody want it?” “Where should I invest my money to guarantee 0% return?” (Answer: anywhere, lately.) I’m not saying that the world lacks generosity/charity. But how many examples do we have of someone making $500,000/yr (in whatever form) and donating $400,000 per year to those in need, figuring $100,000/yr is plenty to live comfortably? I want names (and actually hope there are some examples).

This basic desire for more has meshed beautifully with a growth-based economic model and a planet offering up its stored resources. The last few hundred years is when things really broke loose. And it’s not because we suddenly got smarter. Sure, we have a knack for accumulating knowledge, and there is a corresponding ratchet effect as we lock in new understanding. But we have the same biological brains that we did 10,000 years ago—so we haven’t increased our mental horsepower. What happened is that our accumulation of knowledge allowed us to recognize the value of fossil fuels. Since then, we have been on a tear to develop as quickly as we might. It’s working: the average American is responsible for 10 kW of continuous power production, which is somewhat like having 100 energy slaves (humans being 100 W machines). We’re satisfying our innate need for more and more—and the availability of cheap, abundant, self-storing, energy-dense sources of energy have made it all possible.

 

See the Do the Math post on peak oil for particulars on one scenario that has me worried. In brief, a declining petroleum output leads to supply disruptions in many commodities, price spikes, decline of travel/tourism industries, international withholding of oil supplies, possibly resource wars, instability, uncertainty, a sea change in attitudes and hope for the future, loss of confidence in investment and growth in a contracting world, rampant unemployment, electric cars and other renewable dreams out of reach and silly-sounding when keeping ourselves fed is more pressing, an Energy Trap preventing us from large scale meaningful infrastructure replacement, etc.  There can be positive developments as well—especially in demand and in “attitude adjustments.”  And perhaps the market offers more magic than my skeptical mind allows.  But any way you slice it, our transition away from fossil fuels will bring myriad challenges that will require more forethought, cooperation, and maturity than I tend to see in headlines today.

 

People often misinterpret my message that “we risk collapse,” believing me to say instead that “we’re going to collapse.” It’s interesting to me that the concept of collapse is taboo to the point of coming across as an offensive slap in the face. It clearly touches an emotional nerve. I think we should try to understand that. Personally, this reaction scares me. It suggests an irrational faith that we cannot collapse. If I did not think the possibility for collapse was real, I might just find this reaction intellectually intriguing. But when the elements for collapse are in place (unprecedented stresses, energy challenges, resource limitations, possible overshoot of carrying capacity), the aversion to this possible fate leaves me wondering how we can mitigate a problem we cannot even look in the eye.

Note: Varki’s book, which provides a plausible explanation for our inability to discuss, let alone act on, obvious human overshoot, was published after this essay.

 

Others react by an over-use of the word “just.” We just need to get fusion working. We’ll just paint Arizona with solar panels. We’ll just switch to electric cars. We just need to go full-on nuclear, preferably with thorium reactors. We just need to exploit the oil shales in the Rocky Mountain states. We just need to get the environmentalists off our backs so we can drill, baby, drill. This is the technofix approach. I am trying to chip away at this on Do the Math: the numbers often don’t pan out, or the challenges are much bigger than people appreciate. I have looked for solutions to things we can just do to alleviate the pressures on the system. With the exception of just reducing how much we personally demand, I have been disappointed again and again. I’ll come back to personal reduction in the months to come: lots to say here.

 

Aside from the cadets, the message was clear from reactions that growth is a sacred underpinning of our modern life, and that we must not speak of terminating this regime. After all, how could we satisfy our yearning for more without the carrot of growth dangling in front of us? Some argue that we need growth in the developing world in order to bring humanity up to an acceptable standard of living. I am sympathetic to this aim. So let’s voluntarily drop growth in the developed countries of the world and let the underdogs have their day. Did I just blaspheme again? I keep doing that. I perceive this compassion for the poor of the world as a cloak used to justify the base desire of getting more stuff for ourselves. Prove it to yourself by asking people if they would be willing to give up growth in (or even contract) our economy while the third world continues growing for the next half-century. You may get rationalizations of the flavor that without growth in the first world, the engine for growth in the third world would be starved and falter: they need our consumer demand to have a customer base. I’m skeptical. I think people just want stuff—even if they’ve got lots already.

 

Many look to political leaders for, well, leadership. But I’ve come to appreciate that political leaders are actually politicians (another razor-sharp observation), and politicians need votes to occupy their seats. Politicians are therefore cowardly sycophants responding to the whims of the electorate. In other words, they are a reflection of our wants and demands. A child who has just been spanked for throwing a tantrum would probably not re-elect their parent if allowed the choice. We all scream for ice cream. Why would we reward a politician for leading us instead to a plate of vegetables—even if that’s what we really need. Meanwhile we find it all too easy to blame our ills on the politicians. It’s a lot more palatable than blaming ourselves for our own selfish demands that politicians simply try to satisfy.

 

My basic point in all this is that I perceive fundamental human weaknesses that circumvent our making rational, smart, adult decisions about our future. Our expectations tend to be outsized with respect to the physical limitations at hand. We quickly dash up against ideological articles of faith, so that many are unable to acknowledge that there is an energy/resource problem at all. The Spock in me wants to raise an eyebrow and say “fascinating.” The human in me is distressed by the implications to our collective rationality. The adult in me wants less whining, fewer temper tantrums, realistic expectations, a willingness to sacrifice where needed, the maturity to talk of the possibility of collapse and the need to step off the growth train, and adoption of a selfless attitude that we owe future generations a livable world where we can live rich and fulfilling lives with another click of the ratchet.  Otherwise we deserve a spanking—sorry—attitude adjustment.  And nature is happy to oblige.