Sunday, September 28, 2014

The problem with low oil prices

As a former techno-optimist, up until a few years ago I believed peak oil was nothing to worry about and I saw no reason why we shouldn't be able to carry on civilization on renewable energy in any case. Now I see how spectacularly ignorant I was, and what decisively convinced me was the problem of too low oil prices. Try to wrap your mind around what low oil prices really mean, and therein lies the frightful realization that the future cannot be anything like we commonly imagine. Low oil and other commodity prices are much more problematic than they appear at first glance, because it takes an increasing amount of real resources to produce these commodities, and if the market is unable to afford at least this cost, then eventually the commodities cannot be had at all. As an analogy, consider space tourism. We know it is technically possible to go to the moon, yet it is impossible to book a cruise to the moon at any price, even if you are a billionaire, because the entire potential market is too poor to support the infrastructure investments needed to produce a moon tourism industry in the first place. So space travel cannot be had at any price, despite technical feasibility. And that is the fate of the oil industry as well, and all other advanced technological industries. Everything we value and depend on, including enough food to sustain anything close to the current population, will be gone within our lifetimes or shortly thereafter.

If oil prices could rise arbitrarily high, then there would be no insurmountable problem, and substitution would also be possible. But reality doesn't work that way, because there is a limit to how much the market can pay (in fact, wages seem to have hit the ceiling already for most people), and the universe is under no obligation to provide us with resources we can't afford even if we desperately need them. When oil is getting too expensive to extract, it obviously also does not work to substitute with something even more expensive. Unfortunately, all conceivable alternatives to fossil fuels are more expensive, and the much hyped "green" alternatives may in fact be counterproductive and hasten our collapse. We are therefore surely doomed, and there is nothing science or technology or wealth can do about it.

It is intuitive to me at this point that industrial civilization cannot operate on renewable energy such as solar and wind and biofuels, because these energy sources are too diffuse. While not intuitive, I also tend to accept the conclusion that nuclear energy will not work either (too low EROEI, all things considered, which is manifested in lack of profitability and the need for subsidies), based on the analysis of smarter people than I. Our civilization is all over but the crying, and the only question left to be decided is the time scale and details of the collapse. At one extreme, you have people like Gail Tverberg and David Korowicz, who say collapse will be nearly instantaneous, and on the other hand you have John Michael Greer, who says our descent into the next dark ages will take a century or more. I am still trying to figure out who is right, but I have no doubt that growth is over, it will be all downhill from here, and the end result will not even be worth living in by our standards for the few who manage to survive the bottleneck. On the plus side this also means victory over feminism is assured, because the feminist police state with enforcement of its hateful sex laws cannot be sustained without fossil fuels, but it is a Pyrrhic victory.

Gail is the world's biggest pessimist indeed. She does not think humans can do anything. But she is right -- absent the global economy with all its long and interdependent supply lines that make up the operational fabric of our civilization, there is very little humans can do. It does not matter how smart you are -- alone you are limited to Stone Age technology, and this is even true for isolated countries and regions. If you don't believe this, go and try to dig up some oil or coal yourself with your bare hands, and you understand how dependent we are on the entire networked economy, which is precisely what is on the cusp of breaking down.

These days the news is full of reports on layoffs in the Norwegian oil sector due to decreasing profitability and diminishing investments in new projects. This is happening because the cost of extracting oil in the North Sea has quintupled over the last decade! It is surreal to read Norwegian newspapers which present peak oil as a local problem and pretend we can be fine doing something else and perhaps even thrive by investing in green energy. They do not explain that the fundamental problem is diminishing returns, which affects all resource extraction globally. That article actually admits that there is no profit in renewables, yet they are presented as a solution, and how renewables can be perpetuated without subsidies from fossil fuels is based on nothing but wishful thinking. Exactly what Gail predicted is happening, yet most people are unable to put two and two together and contemplate the full implications. Everyone should read her latest post, because she explains the problem with low commodity prices better than I. Or perhaps it is best not to, if you would prefer to remain blissfully ignorant as long as possible.