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There is something deeply tragic about watching people who would be dead within a fortnight without oil nevertheless calling for oil – and fossil fuels more broadly – to be banned immediately. It is possible, of course, that these people believe that food grows inside supermarkets or that the chemicals used to provide clean drinking water can be beamed to the waterworks using Star Trek technology. The hard reality though, is that every aspect of modern living – even for those of us surviving on the margins – depends upon oil… and not just any old oil. The workhorse behind the modern, hi-tech western economies is the roughly 30 percent fraction of an average barrel of oil called diesel.
Take a look around the room where you are reading this. Every item your eyes land upon was, at some point in its life, transported on a truck – if you are in the UK, a large part of it will have arrived on a ship from Asia too. Almost all of those trucks used diesel as a fuel. Some smaller trucks and vans may have used petrol (gasoline) and an even smaller number may have been electric… but only the small ones – you cannot run a large semi using batteries (at least, not if you want to leave some space for cargo).
Take another look around the room for anything made from or with plastic, or anything which is painted or dyed. These, too required oil in their manufacture. Almost everything made of metal or requiring metal as a component began life in the bucket of a diesel-powered crane, which loaded it as an ore onto a diesel-powered mining truck, which delivered it to a fossil fuel-powered grinding machine which, in turn moved the crushed ore to a fossil fuel (coal or gas)-powered smelter.
Even if the electricity you are using to read this post was generated using a wind turbine – something which is increasingly common on windy days in the UK these days – you still haven’t escaped fossil fuels. The average, two-megawatt land-based turbine requires some 30,000 tons of concrete – about 60 truckloads. Then there’s the steel:
“For a 5-megawatt turbine, the steel alone averages 150 metric tons for the reinforced concrete foundations, 250 metric tons for the rotor hubs and nacelles (which house the gearbox and generator), and 500 metric tons for the towers… Steel used in turbine construction embodies typically about 35 gigajoules per metric ton.”
The other thing with wind turbines is that they are mostly located in remote areas so that they rack up thousands of miles – at around 6.5 miles per gallon of diesel – transporting the components from the factory to the wind farm. And then there’s the thousands of miles of copper and aluminium cables to connect them back to the urban centres that need the electricity… all of it manufactured and transported with fossil fuels.
Here’s a question you might not have thought about: when did the world reach the coal limit of coal production? Because the world today is more dependent upon coal than at any time before – largely because the western economies offshored our industry to China, and because China has leaned heavily on coal to develop its economy. But almost all of the coal production today depends upon diesel-powered machinery. The days when steam power – combined with animal and human labour – could provide us with all of the coal we needed, ended in the second decade of the twentieth century:
Coal (and gas) produced since then has depended ever more on a steady supply of cheap diesel, so that, by 2002, China had burned more coal than Britain has done since the dawn of the industrial revolution. And had it not done so, the imports which we depend upon – ironically including wind turbines, solar panels and nuclear components – would simply not have appeared.
Put simply, without oil – and especially diesel – we are done. So we can thank our lucky stars that there is still plenty of oil yet to recover… right? Well, not quite. While some estimates claim that – including the source rock – there is as much oil beneath the ground than all of the oil we have consumed so far, most of it will never see the light of day. This is because all of the big, easy to extract oil fields have been discovered, and most of them are depleting. The fields which remain tend to be small; and are often in difficult locations – such as the Arctic or the northeast Atlantic – where – reflecting the thermodynamic limit – the cost of recovery may be higher than the price the oil can be sold for.
You will, of course, have been painfully aware of the recent spikes in the price of oil – at one point taking them above the psychological $100 per barrel mark. Although for most of us, awareness comes when we fill up at the pumps or when we have to pay ever higher prices for anything that arrives on a truck. Most people believe the establishment media BS about it all being Putin’s fault – if true, they should make Putin the next Doctor Who, because it would take time travel for a war which broke out in February 2022 to cause prices to spike in September 2021. Worse still, by ignoring the real causes we are left unable to respond to what is coming.
There are five broad causes of the oil death spiral. The first goes back to the early 1990s, when politicians wrongly believed that diesel-powered cars would mitigate climate change because they are more energy-efficient than petrol cars. The trouble was that the existing oil refining infrastructure could not handle a growth in demand for diesel. Restructuring the existing infrastructure would cost billions. Developing new infrastructure would be even more expensive. And with a growing environmental opposition, few politicians wanted to risk giving the go-ahead. The answer – as always – was to offshore production… in the UK’s case, to Russia… what could possibly go wrong?
The second problem is with oil itself. Although we can talk about an average barrel of oil in order to give a sense of the refined products we get from the refinery, oil deposits are inconsistent. At one end of the scale, hydraulically fractured oil from shale tends to be very light. At the other end, tar sands are more like the asphalt we use on road surfaces than anything you would want to put in your car. Different refineries around the world require their particular density of oil, so that even net exporting countries like the USA must import some of the oil they need. The American oil refineries, for example, need to import heavier oils.
The third problem is that global oil production peaked at the end of 2018. Today we are producing around five million barrels-a-day less than we had been at the peak. This, in and of itself, would have caused prices to rise… had it not been for the fourth problem: that an insane public health technocracy was allowed to lock down the global economy for the best part of two years without even considering the economic impact this would have. Instead of sending the correct price signal – higher oil prices – the lockdowns created the opposite; oil so cheap that at one point you couldn’t give it away.
Everyone in the oil industry, from the drillers to the refiners responded accordingly, shutting down production and mothballing infrastructure. Meanwhile, investors – who might otherwise have seen rising prices as evidence of a good investment opportunity – moved their money elsewhere. The result was that when we were eventually given permission to get on with our lives again, there was nowhere near enough oil to go around. And so, price increases turned into price spikes and an energy shortage turned into an energy crisis.
Another reason why investors were – and remain – reticent about putting money into the oil industry is that – problem five – the technocracy has decided that we can do without oil entirely. The use of ESG investing rules makes it harder for the oil industry to attract investment anyway. But the bigger problem is that the returns on investment tend to be long-term. If, for example, someone was foolish enough to stump up the billions required to build new diesel-producing refineries in the USA or the UK, it might take ten or twenty years to reap the rewards. But the governments of both countries have said that they will ban internal combustion engine vehicles in just eight years’ time and will have banned fossil fuels entirely just twenty-eight years from now.
Neoclassical – aka “wrong” – economic theory argues that faced with shortages, rising prices will encourage competition. New investment will come in to boost production and bring supply back into balance with demand. When this happens, prices will fall once more. As the old adage has it, “the answer to high prices is high prices.” But this isn’t what’s happening. There is no appetite among investors or those with capital already sunk in the oil industry to develop new production and new infrastructure. Indeed, given the forced march to the net zero utopia, it makes more sense to let someone else deal with the shortages and instead enjoy the fruits of higher prices while they last. As Bloomberg reported last month:
“Diesel appears scarce heading into the northern hemisphere’s winter and will push fuel prices higher, bedeviling policymakers who are focusing on crude to tame energy inflation, warned Goldman Sachs Group in a note to clients…
“Underinvestment in the nation’s fuelmaking capacity, exacerbated by refinery closures and disruptions, is leading to a shortage of refined products, especially diesel, whose stocks are at ‘unprecedentedly low levels,’ said the bank… As a result of what it’s describing as a structural shortage of product, Goldman raised its price forecast for gasoline and diesel next year to $4.32 and $5.34 a gallon, respectively, from $3.99 and $5.07. The bank sees gasoline prices higher even as it forecasts demand falling below 2021 levels.”
This spells bad news for European economies – including the UK’s – which have fewer dollars with which to bid for diesel as the shortages grow. As Ron Bousso and Laura Sanicola at Reuters reported recently:
“Traders are diverting Europe-bound tankers carrying diesel to the U.S. East Coast as the two regions battle for supplies amid an acute shortage and soaring prices. At least two tankers carrying 90,000 tonnes of diesel and jet fuel are heading from Europe to the U.S. East Coast, according to traders and Refinitiv ship tracking data.”
The recent G7 decision to attempt to impose a price cap on Russian diesel will only exacerbate the problem. Although in theory, the higher prices ought to be causing an investment boom, as Irina Slav at OilPrice reports:
“This boom has yet to materialize, however. In the meantime, fuel demand remains robust, resulting in a shortage. In Europe, there have been contributing factors, such as the French refinery workers’ strike, which has made the shortage much worse than it would have been otherwise, and the upcoming planned maintenance-related refinery closures.
“Europe is currently buying a lot of Russian diesel to fill the gap, but this will have to stop next February as the embargo on Russian fuels kicks in, further aggravating an already complicated situation with the supply of middle distillates in a major consuming region.
“Argus reported this week that Europe is in for a major diesel supply shock because of low inventories and strong demand.”
This growing shock is not on most people’s radar, simply because we are still reeling from the eye-watering rises in gas prices which, because we rely on gas for electricity and fertiliser, are the main driver of price rises. But in the longer term, a growing shortage of diesel is going to be far more damaging. And thus far, there seems to be no recognition among the technocracy, the establishment media or the public at large, that without a serious course correction we face ruin. As Juliet Samuel at the Telegraph put it recently:
“The meeting goes like this: ‘We need you!’ say the politicians. The producers scratch their heads as they mull $20 billion, 20-year investments, and wonder whether, when the war is over and the green bandwagon rolls back into town, the politicians will still sound so sweet on them. ‘Your green targets still say we need to shut down by 2030,’ they point out. To which Europe says: ‘Well, of course. Fossil fuels are evil!’”
That’s the real irony – the Just Stop Oil crowd don’t need to throw soup over artworks or glue themselves to motorway gantries, because the politicians and technocrats have already called time on the oil age. There’s an old saying from Aesop’s Fables (c. 260 BC): “Be careful what you wish for, lest it come true!” Those activists and politicians clamouring for an end to fossil fuels would do well to study its moral message. Because the world has entered an oil – or rather, a diesel – death spiral from which we will likely not recover. And the future is not some green techno-utopia, but something more akin to a new dark age.
As you made it to the end…
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