Monday , August 2 2021
Home / Energy / Mere statistics

Mere statistics

Voiced by Amazon Polly

In the current political climate, fossil fuels are deemed to have no redeeming features.  The fact that everything we take for granted, from abundant food to high life expectancy and from clean drinking water to an absence of slavery, is based on fossil fuels is entirely overlooked.  The transition to non-renewable renewable energy-harvesting technologies – NRREHTs – is a matter of quasi-religious faith rather than science and data.  And so we can delude ourselves into believing in a green, hi-tech future in which we “own nothing and are happy.”

The reality, of course, is that peak energy arrived sometime back in 2018 and was already trending down long before SARS-CoV-2 began prematurely ending the lives of millions worldwide.  Less obviously, since the 1970s, the energy cost of energy had been rising remorselessly; so that less surplus energy has been available to power the wider economy ever since.  That may sound technical, but in common sense terms, the lack of available energy translated into falling living standards and rising precariarity for an increasing part of the population.

For the last half-century, then, we have experienced what might be called “relative energy poverty.”  This is evident in this recollection from Guardian columnist Ian Jack:

“I had the idea… when I was walking through a London square around the time of the City’s deregulatory ‘Big Bang’ and Peregrine Worsthorne coining the phrase ‘bourgeois triumphalism’ to describe the brash behaviour of the newly enriched: the boys who wore red braces and swore long and loud in restaurants. Champagne was becoming an unexceptional drink. The miners had been beaten. A little terraced house in an ordinary bit of London would buy 7.5 similar houses in Bradford. In the seven years since 1979, jobs in manufacturing had declined from about seven million to around five million, and more than nine in every 10 of all jobs lost were located north of the diagonal between the Bristol channel and the Wash . And yet it was also true that more people owned more things – tumble dryers and deep freezers – than ever before, and that the average household’s disposable income in 1985 was more than 10% higher than it had been in the last days of Jim Callaghan’s government.”

In strictly material terms, life in the first decade of the twenty-first century was better than it had been in 1973; when the first oil shock brought the curtain down on the post-war boom.  But at the same time, there was a growing sense that ordinary working people were being left behind.  The doors which used to lead to the routes out of poverty were being slammed shut; and debt was becoming the main means of obtaining consumer goods.

Then came the second oil shock.  In 2005 – the year Britain became a net importer of oil and gas – global extraction of conventional oil peaked.  Oil prices rapidly rose above the economy-crushing $80 per barrel, raising prices across the economy and throwing an army of borrowers into arrears.  Turning to textbooks and models which are as grounded in reality as a newspaper horoscope, the central bankers raised interest rates.  The ensuing wave of mortgage defaults certainly halted inflation in its tracks; but only at the cost of mortally wounding the global banking and financial system.

Paradoxically, low interest rates and quantitative easing fuelled a “search for yield” which, among other things, gave birth to the fracking boom in the USA:

“The most important element in the resilience of fracking is that the capital hasn’t gone away. Interest rates are still very low, and there’s plenty of money in the form of pension funds and other giant pools of capital sloshing around looking for a place to invest, and that has kept the capital flowing into the fracking industry.”

At a time when most of the world’s large conventional oil deposits were in decline, fracking appeared to provide us with access to centuries more oil – there still being more oil beneath the ground than we have ever consumed… in reality, almost all of it too energy-expensive to ever extract.  By continuing to grow our total oil extraction, and by forcing prices down to a point at which a small amount of real economic growth – mainly in the developing states – was possible, fracking provided the illusion that we had overcome our energy problems.

In 2018 though, even unconventional oil began to decline:

In 2020, as a result of various lockdowns and restrictions on movement of people and goods, oil extraction fell off a cliff.  Unfortunately, the global oil industry is not something which can be switched off and switched back on again at will.  Machinery and pipelines are damaged when they run below capacity.  Drilling rigs are scrapped and engineers laid off when they are not needed.  Equipment and materials supply chains brake down as just-in-time supply is disrupted.  And wells themselves become clogged and damaged if they are shut down.  This means that whatever else happens, the oil industry faces considerable costs just to restart production.

Shortages of oil have been visible for months; although they have only entered establishment media consciousness now that fuel prices are rising.  In February, Dean Foreman at the American Petroleum Institute warned that:

“Based on projected rising demand, the natural production decline from existing wells and decreases in drilling activity and industry investment – especially in the US – the world’s oil needs could outpace production in 2022. An undersupply potentially could put upward pressure on costs, impacting consumers, manufacturers and, generally, any process that utilizes oil…

“Let’s translate this into something more relatable. Global oil production for February 2021 was estimated at 93.6 mb/d, which was less than global oil demand of 96.7 mb/d, per EIA.  The decline of global production from existing fields therefore equates to a range of 3.7 mb/d to 6.6 mb/d, with and without investments in existing fields.

“For 2022, global oil production is expected to increase to 100.8 mb/d in response to higher demand.  The natural oil production decline range therefore equates to an additional 4.0 mb/d to 7.1 mb/d.

“The key question is where this new production will come from. The most immediate source would be to bring oil spare production capacity back on stream. In January, EIA estimated that OPEC had 6.7 mb/d of crude oil spare production capacity, and the Russia and Caspian region’s production was 1.7 mb/d below its highest output of 15.0 mb/d in December 2018. Consequently, OPEC and Russia and Caspian producers might be able to raise their production by 8.4 mb/d – only about half of what’s needed.”

Once again, looking solely at geology, the oil is there.  But other issues have to be taken into account.  Notably, activists have forced additional constraints on oil companies.  For example, the Biden administration has cancelled pipelines and introduced bans on future drilling.  Activist shareholders have also forced oil companies to switch investment away from future drilling into NRREHTs.  Most constraining of all, however, is the financial viability of the industry.

Since the crash of 2008, there has been no “goldilocks zone” in which fuel prices are affordable at the same time as oil extraction is profitable:

Since affordability is ultimately a product of surplus energy, as the energy cost of energy continues to increase, so fewer companies remain profitable even as consumption becomes increasingly unaffordable.  This is the same “energy death spiral” that the electricity industry has been struggling with for years.

As David Messler at Oil Price warns, in the medium term, oil shortages are baked-in:

“There are a number of observable trends in oil supplies and by extension prices, presently. I am going to discuss one of them in this article. A lack of capital investment in finding new supplies of oil and gas… This key metric reveals what the future is likely to hold for our energy security as the world continues to recover from the virus to those who will listen. The level of drilling and by extension capital investment is insufficient and has been for a number of years to sustain oil production at current levels. It’s no secret that even with the lower break-even costs for new projects thanks to cost-cutting by the industry the last few years, oil extraction is a capital-intensive business…

“The message to oil and gas companies has been pretty clear from the market, investment funds like Blackrock seeking green ‘purity’ in the allocation of financing of new energy sources, and government edicts mandating carbon intensity reduction across the entire swath of society, and a transformation to renewable energy, that new supplies of oil and gas are not wanted…

“Some producers, like OPEC+, have restrained production the last couple of years, and have the ability to bring those barrels back. That will help in the near term and may delay the inevitable, but misses the larger points of why overall global production is set to go into underbalanced territory as early as next year.”

Absent some yet-to-be-discovered source of low-cost, high-energy density power source, the relative energy poverty we have lived with for decades is going to flip into absolute energy poverty; with millions of people across the developed and developing states having to radically alter their way of life to focus solely on the continued production of essentials like food and clean water. 

Even after the industrial revolution, a quarter of the population was involved in agriculture right up until World War Two.  These were supplemented by seasonal workers brought in for the harvest.  It was also common for people to supplement this by growing their own fruit and vegetables and by keeping chickens and rabbits.  Today, less than two percent are employed in agriculture and hardly anyone produces their own food, save for hobbyists.  The reason for the change?  In a word; oil.  The oil-based automation of agriculture freed the workforce to work in the modern “bullshit jobs” that we all know and love.  Seriously though, without oil there is simply no way that we could have 7.5 billion humans on planet Earth.  Indeed, the last time humanity lived entirely on renewable energy there were no more than half a billion of us.  Which raises what should be the number one question of our age: can we feed 7.5 billion without using fossil fuels?

The simple answer is no.  NRREHTs have failed to even dent our insatiable appetite for energy.  And even at the Herculean rate at which they have been deployed, they provide just a tiny fraction of our total energy consumption:

Even where NRREHTs have had an impact – in the generation of electricity in a handful of European states which have offshored their manufacturing to Asia – they have proved wholly inadequate for meeting the transport, agricultural, heavy industrial and thermal requirements of the wider economy; including the industrial infrastructure required to manufacture, transport, deploy and maintain NRREHTs themselves.

There are many green activists who simply don’t care, and will continue to argue for a rapid switch from fossil fuels to NRREHTs irrespective of the damage and loss of life that this will inevitably bring about; no doubt agreeing with Joseph Stalin that, “If only one man dies of hunger, that is a tragedy. If millions die, that’s only statistics.”

As I said, it is easy to promote NRREHTs when fossil fuels are providing for all of your needs and wants.  It will be a different matter as many of the things we have taken for granted are curtailed as a result of growing fossil fuel shortages.  Because these shortages are not going away this time around.  For decades, we have been discovering far less oil than we have been consuming.  Moreover, the majority of that new oil is too energy-expensive to produce at a price our current economy can afford.  Beginning with transport – which uses fuel directly – and then spreading to all of the other oil-dependent sections of the economy, prices are about to increase.  But at the same time, the decline in surplus energy means that far fewer of us will be able to afford to consume.

Those who have vociferously agitated for fossil fuel consumption to be rapidly brought to an end, might want to consider a warning from Aesop’s fables:  “Be careful what you wish for, lest it come true.”

Check Also

Upsetting a delicate balance

Until the 1860s, whale oil had been the main fuel for lighting and for use …