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.


Øyvind Holmstad said...

Dette var en meget bra oppsummering av vår nåværende situasjon med få ord!

Allikevel tror jeg dessverre ikke budskapet går inn hos de fremskrittstroende, som utgjør flertallet av befolkningen. Å måtte gi avkall på sin tro er svært vanskelig for de fleste.

Også min egen bror må jeg dessverre innrømme at det er umulig å nå inn til, og han bare ler overbærende av meg når jeg presenterer ham for de sammenhengene du redegjør for her.

Mer alvorlig er det når autoriteter som nobelprisvinner i økonomi, Paul Krugman, foreskriver et forvrengt framtidsbilde i toneangivende media som New York Times:

Anonymous said...

Unless you need to burn more oil to extract oil, seems that labor would just be reallocated, assuming the economy is not paralyzed by government. All the guys building houses, coding iphone games, manufacturing TVs, etc. would find themselves unemployed, and would go to the oil industry for any wage, for any amount of hours, under any working conditions. There is a lot of excess in the current system

Eivind Berge said...

The way costs are escalating in the oil industry (by more than 10% yearly in the North Sea, and that's typical for any kind of mining operation these days), even if you could somehow reduce labor costs to zero, that would only buy you a few more years before you have to shut down because you are losing money at the current oil price anyway. I think labor costs in the oil industry are something like 40% of operating costs at most, and they could be reduced somewhat, but the problem of diminishing returns does not go away. In fact the entire advantage of cutting labor costs could be cancelled out overnight with a drop in the oil price to $50 or lower, which is definitely going to be the case when there is so much unemployment that people are willing to work in the oil industry for peanuts. Also, many of these jobs require highly specialized labor that you can't just allocate from anywhere.

Øyvind Holmstad said...

Wrong link, here is the correct lecture.

- Peak mining & implications for natural resource management - Simon Michaux:

Øyvind Holmstad said...

I just saw that Michaux has left a new comment regarding his lecture:

"Data has been collected since this was uploaded and this presentation has evolved. I now have data to show that the year 2005 was a turning point. Oil supply became inelastic and at the same time Chinese demand for raw materials accelerated. Metal prices (Au, Ag, Ni, Pb, Cu, Fe, Zn, etc) spiked and became very volatile. The 2008 economic correction of the GFC did not resolve these issues and return metal prices to the levels prior to 2005 nor did it create a new level of stability. This means that the underlying issues were not addressed and market speculators were not the controlling force.

We are now 8-9 years into an era of industrial transformation. I believe this is a signature for the start of transformation as a consequence of Peak Oil. All of our resources are following this pattern. Peak oil is certainly not the only problem we are faced with. Our financial and economic systems are far too fragile and disconnected from reality to engage in the required industrial reform.

There are some technological solutions which might help if applied correctly. The real constraint is now time. We are out of time. We really need 10-20 years to manage the transition after the political will has been established. These problems here now. Current political leadership are engaging in squabbling over the dregs of what resources are left and maintaining the status quo. We are using the last of the easy to get resources, to do the equivalent of straightening bananas. All of this indifference does suggest a certain outcome."

And most people still believe we are marching into a future of progress!

Eivind Berge said...

Thanks for posting that, Øyvind. Simon Michaux has been a big influence on my thinking about peak oil and mining as well. His lecture on peak mining is a real eye-opener and highly recommended.

Anonymous said...

Almost all countries lack any rational energy policy. What works in one country, may not work in another---for example Brazil has become energy independent on biofuels. But they have a climate suited for that, which Norway doesn't have.

I think there are solutions to the energy problem: but the Elites aren't interested in developing them. It's part of a bigger picture: most of the Elites have the goal of reducing the Earth's population---to make us more controllable. Hence, sustainable energy is something they could care less about.

Anonymous said...

Off-topic but don't know where to put it - what are your opinions on California's new "affirmative consent" law?

Eivind Berge said...

Feminist corruption of rape law is the primary reason behind my radicalization into an MRA in the first place. They already had the absurdly broad "no means no" standard, which is now to be replaced with "yes means yes" or affirmative consent, meaning sex is assumed to be rape by default unless the man can prove consent. So far this only applies on college campuses in California (and only if the universities allow themselves to be coerced by the threat of defunding), but of course feminists don't want to stop there -- they want affirmative or even enthusiastic consent as the standard in criminal law everywhere as well.

From the bill:

"(1) An affirmative consent standard in the determination of whether consent was given by both parties to sexual activity. “Affirmative consent” means affirmative, conscious, and voluntary agreement to engage in sexual activity. It is the responsibility of each person involved in the sexual activity to ensure that he or she has the affirmative consent of the other or others to engage in the sexual activity. Lack of protest or resistance does not mean consent, nor does silence mean consent. Affirmative consent must be ongoing throughout a sexual activity and can be revoked at any time. The existence of a dating relationship between the persons involved, or the fact of past sexual relations between them, should never by itself be assumed to be an indicator of consent."

Note that the affirmative consent standard applies even in the absence of any unconsciousness or impairment, so drunk women are not even capable of enthusiastic consent. This is indeed a very radical reform, beyond the already thoroughly feminist-reformed concept of rape on college campuses. It encompasses a whole lot of perfectly agreeable sexual encounters where the man simply did not bother to go through with the formality of obtaining an indicator of consent that would satisfy this hysterical definition. All these men are now to be treated as rapists as far as colleges in California are concerned. Rape is reduced to nothing more than a technicality.

Needless to say, I find the affirmative consent standard appalling and hateful. I also find it amusing how American colleges take it upon themselves to act as surrogate parents and seek to create an ultra-safe environment devoid of anything offensive. However, the solution is obvious: Men should not go to college, at least in California. Why pay to be subjected to hatred against yourself? Sadly, I suspect men will still go to college as if nothing has happened and both sexes will mostly just laugh at this silly and artificial standard for consent and behave normally instead -- until a woman has her regrets for whatever reason, in which case this law gives her an unfair weapon. So it will work as intended.

Anyway, the world is shaping up to be a trainwreck in so many ways now that feminism won't matter much longer.

Eivind Berge said...

Interesting comment from JMG:

"All the fast-crash people insist that we face worse problems than any previous civilization has faced. All the progress-will-save-us people insist that we have more capability to meet those problems than any previous civilization has had. I think they're both right, and that they cancel each other out -- giving us the usual one to three centuries of decline, ending in a half millennium or so of dark age."

Could he be right? However, even he thinks major upheavals are imminent:

"Again, my take is that we're on the brink of a multidecade crisis period, which will be followed by another period of relative calm -- mind you, the US will probably be an impoverished Third World nation by the time the crisis ends, but that's common enough in such situations. The calm will be followed by another round of crisis, another calm, and a final round of crisis toward the latter part of the 22nd century in which the last scraps of industrial civilization will go under once and for all. I'll talk about the reasons for that scenario in an upcoming post."

Meanwhile, the oil price keeps dropping and sentiment turns gloomy in Norway. This post is becoming more prophetic than I had bargained for. Now the experts expect oil to stay below $80:

But they still don't connect all the dots. There is little awareness in the mainstream media of diminishing returns and declining EROEI as the root cause of our financial troubles, and they do not seem to grasp the full implications of commodity prices falling below production costs, which is now looking like a very plausible scenario.