A Forecast Of Our Energy Future; Why Common Solutions Don’t Work

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A Forecast Of Our Energy Future; Why Common Solutions Don't Work

A Forecast Of Our Energy Future; Why Common Solutions Don’t Work

In sequence to know what solutions to a appetite difficulty will or won’t work, it is required to know a loyal inlet of a appetite predicament. Most solutions destroy given analysts assume that a inlet of a appetite problem is utterly opposite from what it unequivocally is. Analysts assume that a problem is a solemnly building long-term problem, when in fact, it is a problem that is during a doorway step right now.

The prove that many analysts skip is that our appetite problem behaves unequivocally many like a near-term financial problem. We will plead since this happens. This near-term financial problem is firm to work itself out in a proceed that leads to outrageous pursuit rubbish and bureaucratic changes in a nearby term. Our slackening strategies need to be deliberate in this context. Strategies directed simply during relieving appetite shortages with high labelled fuels and high-tech apparatus are firm to be brief lived solutions, if they are solutions during all.


1. Our series one appetite problem is a rapidly rising need for investment capital, usually to contend a fixed spin of apparatus extraction.This investment collateral is earthy “stuff” like oil, coal, and metals.

We pulled out a “easy to extract” oil, gas, and spark first. As we pierce on to a formidable to mislay resources, we find that a need for investment collateral escalates rapidly. According to Mark Lewis essay in a Financial Times, “upstream collateral expenditures” for oil and gas amounted to  nearly $700 billion in 2012, compared to $350 billion in 2005, both in 2012 dollars. This corresponds to an inflation-adjusted annual boost of 10% per year for a 7 year period.

Figure 1. The proceed would design a cost of a descent of appetite reserve to rise, as calculable reserve deplete.

In theory, we would design descent costs to arise as we proceed boundary of a volume to be extracted. In fact, a high arise in oil prices in new years is of a form we would expect, if this is happening. We were means to get around a problem in a 1970s, by adding some-more oil extraction, substituting other appetite products for oil, and augmenting efficiency. This time, a options for regulating a conditions are many fewer, given a low unresolved fruit have already been picked, and we are reaching financial boundary now.

Figure 2. Historical oil prices in 2012 dollars, formed on BP Statistical Review of World Energy 2013 data. (2013 enclosed as well, from EIA data.)

To make matters worse, a fast rising need for investment collateral arises is other industries as good as hoary fuels. Metals descent follows rather a same pattern. We extracted a top class ores, in a many permitted locations first. We can still mislay some-more metals, though we need to pierce to revoke class ores. This means we need to mislay some-more of a neglected rubbish products, regulating some-more resources, including appetite resources.

Figure 3. Waste product to furnish 100 units of metal

There is a outrageous boost in a volume of rubbish products that contingency be extracted and approaching of, as we pierce to revoke class ores (Figure 3). The boost in rubbish products is usually 3% when we pierce from ore with a thoroughness of .200, to ore with a thoroughness .195. When we pierce from a thoroughness of .010 to a thoroughness of .005, a volume of rubbish product some-more than doubles.

When we demeanour during a acceleration practiced cost of bottom metals (Figure 4 below), we see that a index was generally descending for a prolonged duration between a 1960s and a 1990s, as capability improvements were incomparable than descending ore quality.

Figure 4. World Bank acceleration practiced bottom steel index (excluding iron).

Since 2002, a index is higher, as we competence design if we are starting to strech boundary with honour to some of a metals in a index.

There are many other situations where we are fighting a losing dispute with nature, and as a outcome need to make incomparable apparatus investments. We have badly over-fished a ocean, so  fishermen now need to use some-more resources too locate a remaining many smaller fish.  Pollution (including CO2 pollution) is apropos some-more of a problem, so we deposit resources in  devices to constraint mercury emissions and in breeze turbines in a wish they will assistance a wickedness problems. We also need to deposit augmenting amounts in roads,  bridges, electricity delivery lines, and pipelines, to recompense for deferred upkeep and aging infrastructure.

Some people contend that a emanate is one of descending Energy Return on Energy Invested (EROI), and indeed, descending EROI is partial of a problem. The steepness of a bend comes from a fast boost in appetite products used for descent and many other purposes, as we proceed limits.  The investment collateral limit was detected by a strange modelers of Limits to Growth in 1972. we plead this in my post Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong.

2. When a volume of oil extracted any year flattens out (as it has given 2004), a dispute arises: How can there be enough oil both (a) for a flourishing investment indispensable to contend a standing quo, and (b) for new investment to foster growth?

In a before section, we talked about a rising need for investment capital, usually to contend a standing quo. At slightest some of this investment collateral needs to be in a form of oil.  Another use for oil would be to grow a economy–adding new factories, or planting some-more crops, or transporting some-more goods. While in speculation there is a probability of substituting divided from oil, during any given prove in time, a ability to surrogate divided is utterly limited. Most ride options need oil, and many tillage requires oil. Construction and highway apparatus need oil, as do diesel powered irrigation pumps.

Because of a skip of brief tenure substitutability, a need for oil for reinvestment tends to throng out a probability of growth. This is during slightest partial of a reason for slower world-wide mercantile expansion in new years.

3. In a crowding out of growth, a countries that are many disabled are a ones with a top normal cost of their appetite supplies.

For oil importers, oil is a unequivocally high cost product, lifting a normal cost of appetite products. This normal cost of appetite is top in countries that use a top commission of oil in their appetite mix.

If we demeanour during a series of oil importing countries, we see that mercantile expansion tends to be many slower in countries that use unequivocally many oil in their appetite mix. This tends to start  because high appetite costs make products reduction affordable. For example, high oil costs make vacations to Greece unaffordable, and so lead to cut backs in their traveller industry.

It is distinguished when looking during countries decorated by a suit of oil in their appetite mix, a border to that high oil use, and so high cost appetite use, is compared with delayed mercantile expansion (Figure 5, 6, and 7). There seems to roughly be a sip response–the some-more oil use, a revoke a mercantile growth. While a PIIGS (Portugal, Italy, Ireland, Greece, and Spain) are shown as a group, any of a countries in a organisation shows a same settlement on high oil expenditure as a commission of a sum appetite prolongation in 2004.

Globalization no doubt acted to accelerate this change toward countries that used small oil. These countries tended to use many some-more spark in their appetite mix–a many cheaper fuel.

Figure 5. Percent appetite expenditure from oil in 2004, for comparison countries and nation groups, formed on BP 2013 Statistical Review of World Energy. (EU - PIIGS means EU-27 reduction PIIGS')

Figure 6. Average percent expansion in genuine GDP between 2005 and 2011, formed on USDA GDP information in 2005 US$.

Figure 7. Average commission expenditure expansion between 2004 and 2011, formed on BP's 2013 Statistical Review of World Energy.

4. The financial systems of countries with negligence expansion are generally affected, as are a governments. Debt becomes harder to repay with interest, as mercantile expansion slows.

With delayed growth, debt becomes harder to repay with interest. Governments are tempted to supplement programs to assist their citizens, given use tends to be low. Governments find that taxation income lags given of a lagging salary of many citizens, heading to supervision deficits. (This is precisely a problem that Turchin and Nefedov noted, before to collapse, when they analyzed 8 chronological collapses in their book Secular Cycles.)

Governments have recently try to repair both their possess financial problems and a problems of their adults by obscure seductiveness rates to unequivocally low levels and by regulating Quantitative Easing. The latter allows governments to keep even prolonged tenure seductiveness rates low.  With Quantitative Easing, governments are means to keep borrowing though carrying a marketplace of prepared buyers. Use of Quantitative Easing also tends to blow froth in prices of bonds and genuine estate, assisting adults to feel richer.

5. Wages of adults of  countries oil importing countries tend to sojourn flat, as oil prices sojourn high.

At slightest partial of a salary problem relates to a delayed mercantile expansion remarkable above. Furthermore, adults of a nation will cut behind on discretionary goods, as a cost of oil rises, given their cost of travelling and of food rises (because oil is used in flourishing food). The cutback in discretionary spending leads to layoffs in discretionary sectors. If exported products are high labelled as well, buyers from other countries will tend to cut behind as well, serve heading to layoffs and low salary growth.

6. Oil producers find that oil prices don’t arise high enough, slicing behind on their supports for reinvestment. 

As oil descent costs increase, it becomes formidable for a proceed for oil to sojourn high, given salary are not increasing. This is a emanate we report in my post What’s Ahead? Lower Oil Prices, Despite Higher Extraction Costs.

We are saying this emanate today. Bloomberg reports, Oil Profits Slump as Higher Spending Fails to Raise Output. Business Week reports Shell Surprise Shows Profit Squeeze Even during $100 Oil. Statoil, a Norwegian company, is deliberation walking divided from Greenland, to try to keep a lid on prolongation costs.

7. We find ourselves with a long-term expansion indispensable relating to hoary fuel use, outset from a effects of globalization and from flourishing universe population.

Globalization combined approximately 4 billion consumers to a universe marketplace place in a 1997 to 2001 time period. These people formerly had lived normal life styles. Once they became wakeful of all of a products that people in a abounding countries have, they wanted to join in, shopping engine bikes, cars, televisions, phones, and other goods. They would also like to eat beef some-more often. Population in these countries continues to grow adding to proceed for products of all kinds. These products can usually be finished regulating hoary fuels, or by technologies that are enabled by hoary fuels (such as today’s hydroelectric, nuclear, wind, and solar PV).

8. The multiple of these army leads to a conditions in which economies, one by one, will spin downward in a unequivocally nearby future–in a few months to a year or two. Some are already on this trail (Egypt, Syria, Greece, etc.)

We have dual problems that tend to converge: financial problems that countries are now hiding, and ever rising need for resources in a far-reaching operation of areas that are reaching boundary (oil, metals, over-fishing, deferred upkeep on pipelines).

On a financial side, we have countries perplexing to hang together notwithstanding a critical mismatch between income and expenses, regulating Quantitative Easing and ultra-low seductiveness rates. If countries tell a Quantitative Easing, seductiveness rates are approaching to rise. Because debt is widely used, a cost of all from oil descent to shopping a new home to shopping a new automobile is approaching to rise. The cost of repaying a government’s possess debt will arise as well, putting governments in worse financial condition than they are today.

A large regard is that these problems will lift over into debt markets. Rising seductiveness rates will lead to widespread defaults. The accessibility of debt, including for oil drilling, will dry up.

Even if debt does not dry up, oil companies are already being squeezed for investment funds, and are deliberation slicing behind on drilling. A solidify on credit would make certain this happens.

Meanwhile, we know that investment costs keep rising, in many opposite industries simultaneously, given we are reaching a boundary of a calculable world. There are some-more resources available; they are usually some-more expensive. A mismatch occurs, given a salary aren’t going up.

The earthy volume of oil indispensable for all of this investment keeps rising, though oil prolongation continues on a comparatively prosaic plateau, or might even starts to drop. This leads to reduction oil accessible to deposit in a rest of a economy. Given a squeeze, even some-more countries are approaching to confront negligence expansion or contraction.

9. My expectancy is that a conditions will finish with a sincerely fast dump in a prolongation of all kinds of appetite products and a governments of utterly a few countries failing. The governments that sojourn will dramatically cut services.

With descending oil production, betrothed supervision programs will be distant in additional of what governments can afford, given governments are fundamentally saved out of a surpluses of a hoary fuel economy–the disproportion between a cost of descent and a value of these hoary fuels to society. As a cost of descent rises, a surpluses tend to dry up.

Figure 8. Cost of descent of tub oil, compared to value to society. Economic expansion is enabled by a difference.

As these surpluses shrink, governments will need to cringe behind dramatically. Government disaster will be easier than constrictive behind to a many smaller size.

International financial and trade will be utterly severe in this context. Trying to start over will be difficult, given many of a new countries will be many smaller than their predecessors, and will have no “track record.” Those that do have lane annals will have lane annals of debt defaults and unsuccessful promises, things that will not give lenders certainty in their ability to repay new loans.

While it is transparent that oil prolongation will drop, with all of a intrusion and a skip of handling financial markets, we design healthy gas and spark prolongation will dump as well. Spare tools for roughly anything will be formidable to get, given of a need for a complement of general trade to support creation these parts. High tech products such as computers and phones will be generally formidable to purchase. All of these changes will outcome in a detriment of many of a hoary fuel economy and a high tech renewables that these hoary fuels support.

A Forecast of Future Energy Supplies and their Impact

A severe guess of a amounts by that appetite supply will dump is given in Figure 9, below.

Figure 9. Estimate of destiny appetite prolongation by author. Historical information formed on BP practiced to IEA groupings.

The emanate we will be encountering could be many improved described as “Limits to Growth” than “Peak Oil.” Massive pursuit layoffs will occur, as fuel use declines. Governments will find that their finances are even some-more pressured than today, with calls for new programs during a time income is dropping dramatically. Debt defaults will be a outrageous problem. International trade will drop, generally to countries with a misfortune financial problems.

One large emanate will be a need to rearrange governments in a new, many reduction costly  way. In some cases, countries will mangle adult into smaller units, as a Former Soviet Union did in 1991. In some cases, a conditions will go behind to internal tribes with genealogical leaders. The subsequent plea will be to try to get a governments to act in a rather mutual way.  There might need to be some-more than one set of bureaucratic changes, as a tellurian appetite reserve decline.

We will also need to start prolongation products locally, during a time when debt financing no longer works unequivocally well, and governments are no longer progressing roads. We will have to figure out new approaches, though a advantage of high tech products like computers. With all of a disruption, a electric grid will not final unequivocally prolonged either. The doubt will become: what can we do with internal materials, to get some arrange of economy going again?


There are a lot of due solutions to a problem. Most will not work good given a inlet of a problem is opposite from what many people have expected.

1. Substitution. We don’t have time. Furthermore, whatever substitutions we make need to be with inexpensive internal materials, if we design them to be long-lasting. They also contingency not over-use resources such as wood, that is in singular supply.

Electricity is approaching to decrease in accessibility roughly as fast as oil given of inability to keep adult a electrical grid and other disruptions (such as unwell governments, skip of oil to oil machinery, skip of deputy parts, failure of companies concerned with a prolongation of electricity) so is not unequivocally a long-term resolution to oil limits.

2. Efficiency. Again, we don’t have time to do much. Higher mileage cars tend to be some-more expensive, replacing one problem with another. A large problem in a destiny will be skip of highway maintenance. Theoretical gains in potency might not reason in a genuine world. Also, as governments revoke services and mostly fail, lenders will be reluctant to lend supports for new projects that would in speculation urge efficiency.

In some cases, elementary inclination might yield efficiency. For example, solar thermal can mostly be a good choice for heating prohibited water. These inclination should be long-lasting.

3. Wind turbines. Current industrial form breeze turbines will be tough to maintain, so are  unlikely to be long-lasting. The need for investment collateral for breeze turbines will contest with other needs for investment capital. CO2 emissions from hoary fuels will dump dramatically, with or though breeze turbines.

On a other hand, elementary breeze mills finished with local materials may work for a prolonged term. They are approaching to be many useful for automatic energy, such as pumping H2O or powering looms for cloth.

4. Solar Panels. Promised inducement skeleton to assistance homeowners compensate for solar panels can be approaching to mostly tumble through. Inverters and batteries will need replacement, though substantially will not be available. Handy homeowners who can rewire a solar panels for use detached from a grid might find them useful for inclination that can run on proceed current. As partial of a electric grid, solar panels will not supplement to a lifetime. It substantially will not be probable to make solar panels for unequivocally many years, as a hoary fuel economy reaches limits.

5. Shale Oil. Shale oil is an instance of a product with unequivocally high investment costs, and earnings that are puzzled during best. Big companies who have attempted to mislay shale oil have motionless a rewards unequivocally aren’t there. Smaller companies have somehow been means to put together financial statements claiming profits, formed on hoped for destiny prolongation and unequivocally low seductiveness rates.

Costs for extracting shale oil outward a US for shale oil are approaching to be even aloft than in a US. This happens given a US has laws that capacitate prolongation (landowner gets a share of profits) and other profitable situations such as pipelines in place, abundant H2O supplies, and low race in areas where fracking is done. If countries confirm to ramp adult shale oil production, they are approaching to run into likewise hugely disastrous money upsurge situations. It is tough to see that these operations will save a universe from a financial (and energy) problems.

6. Taxes. Taxes need to be unequivocally delicately structured, to have any CO halt benefit. If partial of taxes consumers would routinely compensate to a supervision are levied on fuel for vehicles, a use can inspire some-more a use of some-more fit vehicles.

On a other hand, if CO taxes are levied on businesses, a taxes tend to inspire businesses to pierce their prolongation to other, lower-cost countries. The change in prolongation leads to a use of some-more spark for electricity, rather than less. In theory, CO taxes could be interconnected with a unequivocally high taxation on alien products finished with coal, though this has not been done. Without such a pairing, CO taxes seem approaching to raise world CO2 emissions.

7.  Steady State Economy. Herman Daly was a editor of a book in 1973 called Toward a Steady State Economy, proposing that a universe work toward a Steady State economy, instead of growth. Back in 1973, when resources were still sincerely plentiful, such an proceed would have acted to reason off  Limits to Growth for utterly a few years, especially if 0 race expansion were enclosed in a approach.

Today, it is distant too late for such an proceed to work. We are already in a conditions with unequivocally depleted resources. We can’t keep adult stream prolongation levels if we wish to–to do so would need severely ramping adult appetite production because of a rising need for appetite investment to contend stream production, discussed in Item (1) of Our Energy Predicament. Collapse will probably be unfit to avoid. We can’t even wish for an outcome as good as a Steady State Economy.

7. Basing Choice of Additional Energy Generation on EROI Calculations. In my view, basing new appetite investment on EROI calculations is an iffy awaiting during best. EROI calculations magnitude a fanciful square of a whole system–”energy during a well-head.” Thus, they skip critical tools of a system, that impact both EROI and cost. They also disremember timing, so can prove that an investment is good, even if it digs a outrageous financial hole for organizations creation a investment. EROI calculations also don’t cruise repairability issues that might digest real-world lifetimes.

Regardless of EROI indications, it is critical to cruise a approaching financial outcome as well. If products are to be rival in a universe marketplace, electricity needs to be inexpensive, regardless of what a EROI calculations seem to say. Our genuine problem is skip of investment capital–something that is gobbled adult during supernatural rates by appetite era inclination whose costs start essentially during a commencement of their lives. We need to be clever to use a investment collateral wisely, not for fads that are costly and won’t reason adult for a prolonged run.

8. Demand Reduction. This unequivocally needs to be a vital proceed we pierce divided from hoary fuels. Even if we don’t have other options, hoary fuels will pierce divided from us. Encouraging couples to have smaller families would seem to be a good choice.


Courtesy: Ourfiniteworld