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End Of Cheap Fossil Fuels Could Have More Severe Consequences Than Thought
Submitted by Kurt Cobb via OilPrice.com,
The characteristic feeling of the post-2008 world has been one of anxiety. Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word "panic." Pan's appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters.
Here is the crux of the matter as expressed in a piece which I wrote last year:
The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out....
Another thing we cannot necessarily count on is the remarkable geopolitical stability that the world experienced for two long stretches during the fossil fuel age. The first one lasted from the end of the Napoleonic Wars in 1815 to the beginning of World War I in 1914 (interrupted only by the brief Franco-Prussian War). The second lasted from the end of World War II in 1945 until now.
Following the withdrawal of U.S. military forces from Iraq, the Middle East has experienced increasing chaos devolving into a civil war in Syria; the rapid success of forces calling themselves the Islamic State of Iraq and Syria which are busily reshaping the borders of those two countries; and now the renewed chaos in Libya. We must add to this the Russian-Ukranian conflict. It is no accident that all of these conflicts are related to oil and natural gas.
As I view the current world landscape, I am reminded of two movies (which I've written about before) that I think capture the Zeitgeist: Melancholia and Take Shelter. In both the protagonists increasingly sense that something is terribly wrong, but can't quite put their finger on it. Everyone around them thinks they are ill or crazy. But for both protagonists, their anxiety comes from an inner vision that stems not from mere psychic disturbances, but rather from alarming real-world circumstances that are about to break into the open.
In a sense, these two characters represent those of us who cannot repress the pervasive anxiety of our times and who seek not merely to alleviate it, but rather to face it--to find out its origins and address its causes.
And here we return to the god Pan, mentioned at the outset. It is fitting that this god of nature--of shepherds, flocks, and wild places--should also in our age be associated with the panic we feel. For it is nature itself which is weighing on our economy in the form of climate change and fossil fuel depletion. As California--the seventh largest economy in the world behind France--burns in the heat of a multi-year drought, the grim consequences of our poor stewardship are becoming apparent. The images of fiery forests and dust-dry fields command our attention.
But hidden from the view of most is the role that increasingly expensive energy has played since the beginning of this century in slowing economic growth. The shorthand way of understanding this is that in the last century we extracted all the easy-to-get fossil fuels. Now we are going after the hard-to-get remainder which are costly to extract. That takes resources away from the energy-consuming part of the economy and creates a drag on economic growth. Hence, a dramatically slower economy in 2015 after four years of record or near record average daily prices for the most critical fossil fuel, oil. (The recent drop in oil prices is primarily a reflection of slowing demand that comes from a slowing economy.)
The financial industry through the media has intervened forcefully during the recent stock market sell-off to tell us all not to panic. These corrections are normal, they say, and long-term investors--that is, virtually everyone except Wall Street--should ignore them. What the industry and the media do not tell us is that these are not normal times.
Circumstances have changed dramatically. The evidence is there if only we have eyes to see it. Interest rates in much of the world are still stuck at or near zero seven years after the last worldwide downturn. How will the world's central banks stimulate the economy after the next inevitable recession? By lowering interests that are already at zero? In the post-World War II paradigm, rates would be at much higher levels today, say four or five percent, and economic growth would be much faster.
Annual world economic growth from 1961 through 2000 according to the World Bank was 3.8 percent per year. From 2000 to 2013, an era of increasingly expensive energy, it slowed to 2.4 percent. From the initial spurt of 4.1 percent growth in 2010 (after a contraction of 2.1 percent in 2009), growth settled down to 2.3 percent in 2012 and 2013, slightly below the recent average. This is despite unprecedented efforts to stimulate the world economy through large increases in government spending and record low interest rates.
And, as mentioned above, the geopolitical stability that has been the backdrop to the pervasive buy-and-hold investment mentality has disappeared. Like the protagonists of Melancholia and Take Shelter, we anxiously await we-know-not-what.
As we do, Pan makes his ever-more-frequent appearances. Franklin Roosevelt is famous for saying: "The only thing we have to fear is fear itself." But fear is a protective mechanism. We are right to fear things that can hurt us and to act accordingly. We cannot solve our problems if we refuse to accept that we have them.
Sometimes Pan is trying to help us by warning us. Sometimes it is possible to hear him playing his flute long before he arrives on the scene. But can we listen and act in some way other than panic?
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An oportunity to lay my theory of the ugly world on you again.
In 1956, when some of us were figuring out how to unclasp a girl's bra with one hand, M. King Hubbert was devising a theory comprising the increasing growth of the economy and crude oil. The affect on them by the increasing demand for crude oil, the eventual decrease in the production and supply of crude oil, plus technological improvements in recovery from spent wells and improvements in drilling in increasingly hard to reach deposits.
Peak Oil Theory
In 1980, the Pentagon, whose insanity, along with NATO's, has been on everyone's mind since the events in Kiev in February 2014, finally understood what the eventual drawdown of the world supply of crude oil meant not only only to the American People but, even more importantly, to the American Military.
With the growth of the Global Economy, they figured there was not more than 100 years until "Peak Oil" blew across the globe like the bubonic plague.
Shale oil production would not save the economy in 2080 that way it saved things in 2006. Shale PR was that there were trillions of barrels of shale oil waiting to be pumped up. The fact was that only 5 or 6% of the shale formations had pools of oil suitable for pumping. The rest of the shale formations had to be hauled in giant trucks after giant scoops dumped it in them and moved to giant chambers to be retorted. All of which required much more energy than simply pumping it up.
A Military Decision
So the Military got together with the Fed and they decided, rather than waiting for Peak Oil to arrive, they would crash the global economy, which would have crashed anyway, by selling subprime mortgage bonds to every bank in every country on the planet. When the bonds became worthless assets, the Fed would print enough currency to rescue the American Banks and institutions, while the rest of the world fell on hard times.
The newly impoverished countries in Europe would be much more pliable to important American schemes like the invasion of Iraq, the CIA's revolution in Syria, regime change in Libya and eventually a regime change in Venezuela. The only serious threat to this global scam/oil grab would be an objection by Russia and to quash that the CIA arranged the coup in Ukraine
To this potent mixture add the scary, demented fighters of ISIS, ISIL, or IS, who coincidentally came into being with the invasion of Iraq and the revolution in Syria.
This begs the question was ISIS the intention of the actions of America in Syria and Iraq?
ARE THE REFUGEES FLEEING FROM ISIS IN THE MIDDLE EAST AND FLOODING THE FIRST WORLD OF EUROPE, PART OF THE CIA'S PLAN?
Is it only coincidental that European countries, whose GDPs had fallen off the charts, would suddenly have a million more mouths to feed from the super markets and a million more rear ends to clothe from the walmarts?
And how did it happen that with Iraqi invasion in 2003, the Syrian rebellion and the fall of Qaddafi in 2011, that a million Arabs all showed up on the shores of the Mediterranean AT THE SAME TIME?
And there were boats there waiting to whisk them away?
Oh, a fat middle aged Jewess with greasy hair had been seen running up and down the coast from the Dardanelles to Tunis waving her hands over her head, screaming "Putin is coming. Putin is coming"
"PART OF THE CIA'S PLAN?"
oh there is a plan, but i don't think you are imaginative enough...think a bit darker...quite a bit.
The CIA may as well be 2nd graders in "the plan".
"THINK A BIT DARKER"
Well, sir, wasn't I the first American to posit a theory that the Director of the CIA, William Casey, himself ordered an operative at the Chernobyl nuclear power plant to cause a 'meltdown', the purpose of which was to derail a congressional hearing on the Challenger Disaster, when seven Astronauts were launched to their deaths one frigid Florida morning so that Ronald Reagan could talk to them while giving the State of the Union Address from the House of Representatives later that evening.
Casey was dead less than a year later after developing brain tumors, having an operation/lobotomy and losing his power of speech. He then shuffled off to Buffalo, good soldier that he was.
I didn't mean to suggest that the CIA devises all its operations. The Subprime Mortgage Bond and Housing Bubble was obviously the work of Alan Greenspan, who oversaw all the details of its successful run on Wall Street including the selection of his successor B.S.Bernanke.
Perhaps the CIA doesn't originate all the plans it works, but there is absolutely no doubt that the CIA is....
I'll try to get darker. I really will.
It is not "fossil" fuel, please stop calling it that, it's dumb.
It's fossil fuel, unless you think abiogenic oil is a thing.
says, "The recent drop in oil prices is primarily a reflection of slowing demand that comes from a slowing economy"
Um, no.
Global oil demand has been consistently UP for the last 4 years, averaging +1.4mb/day/year.
In fact, the last quarter has seen a demand acceleration, to around +1.6mb/day/yr.
How can you be writing about oil markets if you don't have a clue about the oil markets?
say, where would we go to find out how much oil has gone from the producers into the the strategic reserves of the buyers?
The world is awash in carbon based fuel. AWASH. All scarcity is government caused.
pick a number...
never mind - the prerequisites are way too steep.
have a good day
And I want you to go right on believing that.
These witless will turn eventually, but I would rather it were -- much later.
Forever, you know I'm not ready for this. It's too soon for this shit to start I need more time dammit.
Twelve entire ages of men but right now I'm asking you for more time.
She just smiles. It's not her fault.
Believe whatever you have to believe if it buys me more time.
Engines have always been created for whatever fuel is cheapest. Read some railway history. First wood, then coal, then bunker oil in the 20's diesel in the 50's/60's. Cars ran on gasoline or ethanol at first, then wood gas in the lead up to, and through WWII, especially in Europe. The Germans liked coal oil.
Even if oil, and coal, natgas, and propane all disappeared we'd adapt, and use something cheap, like methanol - made from plant waste - not grain.
It's amazing that people believe that organisms have somehow adapted and evolved over millions of years of history by random chance, but that individuals with intelligence won't adapt when their surroundings change.
Correct. Here is an even cheaper engine that requires no fuel:
https://www.youtube.com/watch?feature=player_detailpage&v=lyXi1efbYrk#t=...
morons and their peak oil. we are in an OIL GLUT. get a gallon for a buck. same price as walmart kool-aid
the oil game has been about suppression. why do you think so many areas are off limits? anwar, entire atlantic coast (which contains BILLIONS of barrels), more. opec is an outpost of nyc....ever since kissinger went down there to tell them they'll accept paper and a partnership instead of gold
and for you real dunces -- the presence of a cartel SHOULD tell you all you need to know
a real scarcity requires no cartel
A glut of crude oil and Hubbert's peak oil theory are not mutually exclusive.
And consumption does not equal demand.
Maybe you believe how awesome the economy is, I don't.
Maybe you believe the glut has nothing to do with punishing Russia, I don't.
That's right.
Billions of barrels that are simply too expensive to extract and therefore never will be.
Billions of barrels of oil which we do not need for transportation or energy.
https://www.youtube.com/watch?feature=player_detailpage&v=lyXi1efbYrk#t=...
Oil glut? Yes, due to over supply by Saudi and Exxon. But artificial gluts are not profitable and can't last, nor will shareholders tolerate it long-term.
We reached "economic peak oil" around the turn of century.
That's why oil price increased 14% per year, y-o-y, for 10 years. And then 8% per year, y-o-y, from 2009 to 2014.
Today's oil price drop is (1) artificial, and (2) will not last.
We are, and have been, in economic peak oil for 15 years.
The easy-to-get oil is over. The new wells are almost entirely shale, sand, polar, deep-water, etc.. Increasingly expensive oil.
The global net price to extract oil will continue to rise, year over year, from here on. The only question is: by how much? five percent? ten percent? hard to say.
Global oil demand will continue to grow into the 2040's, from around 95mb/day today to around 120mb/day at peak demand.
In fact, oil demand is currently accelerating, not slowing (this author is not well informed).
https://www.iea.org/oilmarketreport/omrpublic/
Hit the charts on oil. Oil always returns to trend after an artificial glitch. Always. No historical exceptions.
When oil returns to trend this time ($80-$100/bbl) you can expect a brief wild swing into something approaching $200/bbl, just last the last time it swung a few years ago to $140/bbl.
It was a crooked market manipulation if ever there was one.
The swindle began in December 2007, when only the government and it's friends knew that a recession had started. Recessions are notoriously unfriendly to the price of oil.
The price of a bbl was in the high $80s low 90s, then and rumors began to appear about $150 bbl oil. In the next 6 months it moved slowly up to $147, where it must have met infinite sell orders.
In the Autumn of 2007 when the secret recession could not be concealed any longer, the price of a bbl of oil fell over $100 into the 30's.
If we could find out who were the major sellers of oil in the first half of 2007, I think we could get to the bottom of this.
ps I'd love to know the difference between 'peak oil' and 'economic peak oil,' if you would be so kind.
IMHO, this is the best OilPrice.com piece ever written. It channels Tverberg, but is much much shorter, haha.
Fire Angel
Author says oil demand is slowing. He hasn't a clue.
https://www.iea.org/oilmarketreport/omrpublic/