[Pops]

This guy, Surplus Energy Economics has been blogging since 2012 or so. His thing is basically falling EROEI is leading to diminishing economic returns, which in their turn are being masked by increasing debt. The idea has been hashed out here endlessly so the reason to recommend this guy is that he talks about it just a little differently. He doesn't spout PO jargon or is not as EOTW-y as much as most, he seems more of an economist —albeit one whose eyes, ears and mouth aren't covered by the magic hand.

... there are three trends to be considered, each of which is absolutely critical, and each of which is gathering momentum. The aim here is to explore these trends, and share and discuss the interpretations of them made possible by surplus energy economics.

The first such trend is the growing inevitability of a second financial crisis (GFC II), which will dwarf the 2008 global financial crisis (GFC), whilst differing radically from it in nature.

The second is the progressive undermining of political incumbencies and systems, a process resulting from the widening divergence between policy assumption and economic reality.

The third is the clear danger that the current, gradual deterioration in global prosperity could accelerate into something far more damaging, disruptive and dangerous.

His second point, politics, I don't see much of in the little reading I've done. I assume it is there since he mentions it. He seems more like an early Chris Martenson before CM started channeling Alex Jones.

Anyway, worth a look if anyone is interested in PO economics anymore
.

[AdamB]

This guy, Surplus Energy Economics has been blogging since 2012 or so. His thing is basically falling EROEI is leading to diminishing economic returns, which in their turn are being masked by increasing debt. The idea has been hashed out here endlessly so the reason to recommend this guy is that he talks about it just a little differently. He doesn't spout PO jargon or is not as EOTW-y as much as most, he seems more of an economist —albeit one whose eyes, ears and mouth aren't covered by the magic hand.

Tim was worth a look when he did this report perhaps. A little bit of recycled work from others, but not a surprise for the timeframe of that report. (November 2010)

Hint #1? Now he is recycling it while blogging. Hint #2 begins at Page 33 on that report. Once again, some pretty basic geologic ignorance trips up the economists. Not unexpected, in my experience basic resource economic issues trips up the geologists. And geologic and resource economics then causes the engineers/technology folks quite a bit of furrowed brows and a quick dismissal...I mean really, what do GEOLOGISTS or ECONOMISTS know, because engineers, they rock!

[Plantagenet]

This guy, Surplus Energy Economics has been blogging since 2012 or so.

... there are three trends to be considered....
The third is the clear danger that the current, gradual deterioration in global prosperity could accelerate into something far more damaging, disruptive and dangerous.

What deterioration in global prosperity is he talking about?

Things were rolling along pretty good in the world economy until the Pandemic hit in early 2020. Obviously the government mandated shutdowns were a major economic hit, but now that governments are mostly stepping back and getting out of the way the economy again and the shutdowns are mostly over the economy looks on track to roar back. Rather then deteriorating the economy is getting better. Projections are for extremely high GDP growth in the US through the end of the fiscal year. Thats not deterioration----thats improvement.


Capital markets are strong and the economy is strong. The US economy and the global economy isn't deteriorating ....its improving as it recovers from the government mandated shutdowns.

Cheers!

[Pops]

Once again, some pretty basic geologic ignorance trips up the economists.

Doesn't take a geologist or an economist to grasp that cost to produce new oil is double the cost of existing production. Even new mid-east oil is no longer cheap, $45 now vs $10 in the recent past and pennies back in the day.


May 2019

I don't subscribe to EROEI as the be all-end all, mainly because it is so hard to calculate and so easy to fudge the calculations to fit a particular view. In fact, refining is the most energy intensive part of the process and it has gotten MORE efficient, not less, over the last decades.

But what Morgan calls "surplus energy" — which I take to mean energy "too cheap to meter" i.e. the (deflated) $10-15/bbl oil was up until the 1970s— is the point I key in on. History was human and animal muscle up to a couple hundred years ago. The mid-century - half-century that saw the great leaps and great prosperity were fueled, literally, by nearly free energy. Right up to the OPEC repricing.

Which time, coincidentally or not, was the same point the US inflationary policy collapsed what was left of the gold standard and the economy went permanently in the red. Debt expansion has exceeded GDP "growth" consistently since. One could even imagine that the $4 of borrowing it now takes to produce $1 of "growth" has actually been masking deflation — GDP decline — since the repricing of oil.

So while one can predict this and that based on whatever bias they enjoy, a few things seem fairly clear to my biases:
1. In real terms oil is more expensive now.
2. It will be more expensive still in the future as cheaper to produce oil is depleted.
3. GDP "growth" is over, has been since the '80s
4. Growing debt masks the de-growth.
5. Renewables may "save" us but they won't save growth.

Plain old ROI is important. LTO at $45 cost is simply not as profitable as conventional at $25 — no matter the selling price and offshore shallow and deep are even worse. And LTO may be a safer bet with and quicker payback, profit is still important, as has been apparent in the bankruptcies and buyouts in LTO the last few years.

[Plantagenet]

Doesn't take a geologist or an economist to grasp that cost to produce new oil is double the cost of existing production. Even new mid-east oil is no longer cheap, $45 now vs $10 in the recent past and pennies back in the day.

Actually, oil is currently at ca. $70 bbl on the market.

But that is good news.

In fact, the higher the price of oil goes the better it is for the planet.

We have to stop using all fossil fuels as soon as possible or the planet is going to become too hot to trot.

It doesn't matter if it costs pennies to produce or $45 bbl to produce.

The oil spigot has got to be turned off.

The good news is that turning off the oil spigot does't have to destroy the economy.

In fact, if we're lucky, economic growth will come from transforming to renewable non-carbon energy.


We have to stop using fossil fuels as soon as possible, EROEI be damned!

Cheers!

[AdamB]

Once again, some pretty basic geologic ignorance trips up the economists.

Doesn't take a geologist or an economist to grasp that cost to produce new oil is double the cost of existing production. Even new mid-east oil is no longer cheap, $45 now vs $10 in the recent past and pennies back in the day.

Of course the nominal price of oil today is far more than yesteryear. The real price of oil, now, is similar to what it was from 1860 through about 1880.

And while neither a geologist nor economist pays attention to the practical aspects of WHY existing production costs more than yet to be found or even yet to be developed resources, it is because existing production is a sunk capital argument, and new production is not. Production being more expensive isn't the variable to keep an eye on. The cost of the marginal barrel, for a given demand is. Right now, my estimate is that this number is somewhere in the range of $25-$30/bbl.

So while one can predict this and that based on whatever bias they enjoy, a few things seem fairly clear to my biases:
1. In real terms oil is more expensive now.
2. It will be more expensive still in the future as cheaper to produce oil is depleted.
3. GDP "growth" is over, has been since the '80s
4. Growing debt masks the de-growth.
5. Renewables may "save" us but they won't save growth.

Plain old ROI is important. LTO at $45 cost is simply not as profitable as conventional at $25 — no matter the selling price and offshore shallow and deep are even worse. And LTO may be a safer bet with and quicker payback, profit is still important, as has been apparent in the bankruptcies and buyouts in LTO the last few years.

1. In real terms oil prices today are about the same as they were between 1860-1880.
2. Because of inflation, in nominal terms, tomorrow is a given to be more expensive in most everything.
3. GDP is GDP, and growth stopping has been a staple of peak oil dogma since they began declaring it in the modern era, circa 1990. In some cases, it was claimed that what Helicopter Ben did could NOT make more oil, and therefore could NOT save the world. And here we are 13 years later, and everyone needs to take with a grain of salt any of the proposed mechanisms from those days being rinsed, recycled and repeated.
4. Growing debt is bad, and masks all sorts of things.
5. I don't know what renewables will do, other than I like my solar panels and my EVs and the effect they have on my discretionary budget that means there is "growth" in my discretionary income because of it.

ROI is the world around which oil revolves, not Tim's EROEI claptrap. And LTO is just another cycle in the development, and not even the largest, or most economically or geologically viable.

You won't find me arguing against the entanglement of important commodities (it isn't just about oil) with financial, fiscal and monetary policies of the entities involved. You will find me arguing that hacks who venture into a specialty they don't understand deserve to be relegated to blogging. And anyone who didn't learn from all the past peak oils, real or imagined, doesn't get a pass on being stupid in the same way, again.

[AdamB]

In fact, the higher the price of oil goes the better it is for the planet.
We have to stop using all fossil fuels as soon as possible or the planet is going to become too hot to trot.

And how high does it need to go to stop global jet setters who pretend they care about the planet, to stop jet setting?

[Plantagenet]

In fact, the higher the price of oil goes the better it is for the planet.

And how high does it need to go to stop global jet setters who pretend they care about the planet, to stop jet setting?

Probably about the same level as stopping phony EV supporters who pretend they care about the planet, to stop their phony bloviating about how EVs are going to save the planet.


Oil prices are going UP.....and thats a GOOD THING because it means we will use less oil

Cheers!

[Outcast_Searcher]

This is interesting.

When I first saw the title of this thread, I thought it was going to be talking about the thing I've noticed -- that with green energy like wind and solar, there are erratic bursts of "surplus" energy at times (given the lack of batteries or other sources to store it, and how "dumb" the grid is, at least thus far.

I thought that might be an interesting thing to talk about, vs. the same old "peak oil" and "no growth" dogma, despite all the evidence of ongoing global and US GDP growth, almost every quarter, year after year (aside from the obvious exceptions, like the great recession and the big crunch in spring 2020 from the pandemic).

I thought about this, because I've been noticing discussions re controversy re things like Bitcoin, and how much energy it takes to mine it, and how mining is largely being done when electricity is DIRT CHEAP, like when there is a big burst of "excess" electricity from renewables, which causes the rates to get very low.

For one thing, economic incentives will make measuring and utilizing such energy more and more compelling over time. Mining BTC is just an obvious low hanging fruit for early usage, since it involves LOTS of compute cycles using LOTS of power, and the cost of that power is THE major economic variable, at least with current technology for that purpose.

Oh, and once large batteries and lots of electric storage become more common, then deciding when and how to sell or use one's spare power could very much become "a thing", which things like smart AI agents could perhaps greatly help optimize, 24x7.

I think we're living in very interesting times where on the one hand, lots of bad things are happening causing all kinds of societal stresses and pressures that make things harder, but OTOH, technology could well be used to help make dealing with MANY things much more efficient -- IF society is smart enough to look at things the right way, and prioritize efforts in the right directions.

And of course, things like the perception of needs and priorities, profit incentives, greed, stupidity, short term thinking, etc. will make an intense brew of very different potential outcomes. Pretty much same as it ever was since, say, the industrial revolution, but a lot more intense now with how much AI will be becoming very much "a thing", when coupled with the internet.

Not sure if this is worth talking about. And it may need to be under a different heading, re instead of energy economics, perhaps "making smart collective decisions with modern technology" or something.

Just for one example that might fit, Mobileye is saying it has a crowdsourcing (with drivers who sign up to be part of their network to provide such data to them, and be compensated for doing that) solution to automatically keep its HD maps updated for its coming robo-taxi business. And it's already planning to sell the data collected from that effort (not just road data but things like accidents, fires, downed power lines, big water leaks, really any kind of problem or emergency area government services might need/want to know about to dispatch government services, utilities, medical aid, etc.) to governments, etc. as another revenue stream. (How cool is that?)

Just thought I'd throw it out there in case anyone is interested in the idea.

[Pops]

Of course the nominal price of oil today is far more than yesteryear. The real price of oil, now, is similar to what it was from 1860 through about 1880.

Not sure of the relevance. As I mentioned the price was low for 90 years aside from the wars, a time of great growth and prosperity.

And while neither a geologist nor economist pays attention to the practical aspects of WHY existing production costs more than yet to be found or even yet to be developed resources, it is because existing production is a sunk capital argument, and new production is not.

Note, Rystad says new mideast oil is $45/ bbl—cost. So no, the price isn't the same.

Production being more expensive isn't the variable to keep an eye on. The cost of the marginal barrel, for a given demand is. Right now, my estimate is that this number is somewhere in the range of $25-$30/bbl.

Discounting DUCs, shut-in, storage, politics etc, which I don't watch TBH, actual new production is minimum $45/bbl per Rystad.

The good news I guess is that Rystad thinks the cost of LTO is down to $45 from $80 not long ago. I certainly don't know, guess we'll see how the new owners make out.

1. In real terms oil prices today are about the same as they were between 1860-1880.
2. Because of inflation, in nominal terms, tomorrow is a given to be more expensive in most everything.
3. GDP is GDP, and growth stopping has been a staple of peak oil dogma since they began declaring it in the modern era, circa 1990. In some cases, it was claimed that what Helicopter Ben did could NOT make more oil, and therefore could NOT save the world. And here we are 13 years later, and everyone needs to take with a grain of salt any of the proposed mechanisms from those days being rinsed, recycled and repeated.
4. Growing debt is bad, and masks all sorts of things.
5. I don't know what renewables will do, other than I like my solar panels and my EVs and the effect they have on my discretionary budget that means there is "growth" in my discretionary income because of it.

1. In 1880 oil was for lighting. The Model T didn't show up until 1908. Today oil is for pretty much everything.
2. See the picture, real oil price averaged $20/bbl or less for 50 years, as mentioned, right up until OPEC and the US conventional peak— in 90 years it only exceeded $30 during the world wars. That is selling price, not cost.
3. GDP does not exist in a vacuum. If I told you my disposable income was rising $1,000 every year and by the way, my debt was rising $4,000 every year, would you think the two unconnected?
4. Agree.
5. I'm amazed at how fast the price of RE is coming down. I'm more optimistic than ever that RE will save our bacon... well maybe not our bacon but at least save our gruel.

(hacks) etc.

I've pretty well given up on specialists in this area. Lots of well credentialed people predicted imminent doom over the years. And lots of well credentialed people poo-pooed the idea of peak conventional as well. The various "agencies" have been all around, the IEA was correct apparently in 2010 tho:

Crude oil output reaches an undulating plateau of around 68-69 mb/d by 2020, but never regains its all-time peak of 70 mb/d reached in 2006

(Wayback Machine)

[Plantagenet]

In 1880 oil was for lighting. The Model T didn't show up until 1908. Today oil is for pretty much everything.

It isn't 1880 anymore and it isn't 1908 and oil definitely isn't for everything these days.

Most factories and manufacturing processes don't use oil at all----they run on electricity.

Similarly, we are in the process of driving oil out of the transportation sector, with electric trams, train, trolleys and even cars replacing ICE powered vehicle.

The marine transport business is also starting to decarbonize.

Perhaps the most difficult part of the economy to decarbonize will be air transportation, because the energy density of oil is much greater then existing alternatives, and saving weight is extremely important is air travel.

But just about everything else does't need oil these days.

And thats a good thing.


Oil is no longer "for everything" these days, and hopefully soon it will be for just about nothing......

Cheers!

[AdamB]

Of course the nominal price of oil today is far more than yesteryear. The real price of oil, now, is similar to what it was from 1860 through about 1880.

Not sure of the relevance. As I mentioned the price was low for 90 years aside from the wars, a time of great growth and prosperity.

Didn't notice the 90 time frame, only noticed "in the recent past and pennies back in the day", and "which I take to mean energy "too cheap to meter" i.e. the (deflated) $10-15/bbl oil was up until the 1970s", neither of which specifies the time period AFTER oil was nominally cheap but real dollar expensive.

You are indeed correct that after changes in drilling technology came along and opened up a whole new world of production, there was a stable period demonstrated in the graph you included...and to some extent, it was only because of that stability, and balanced supply/demand, that Hubbert was able to make the bell shaped curve argument that he did.

And while neither a geologist nor economist pays attention to the practical aspects of WHY existing production costs more than yet to be found or even yet to be developed resources, it is because existing production is a sunk capital argument, and new production is not.

Note, Rystad says new mideast oil is $45/ bbl—cost. So no, the price isn't the same.

I will not debate you about what Rystad says, or does not say. I am familiar with the graph you included. And am familiar with how their underlying assumptions differ from mine. In particular, limiting, or changing no more than 2 or 3 key assumptions to line up with better information outside their Cube system. So sure...I know what their model says. Exactly.

Production being more expensive isn't the variable to keep an eye on. The cost of the marginal barrel, for a given demand is. Right now, my estimate is that this number is somewhere in the range of $25-$30/bbl.

Discounting DUCs, shut-in, storage, politics etc, which I don't watch TBH, actual new production is minimum $45/bbl per Rystad.

Well, I've got no objection to Rystad having their number, just as others have theirs.

The good news I guess is that Rystad thinks the cost of LTO is down to $45 from $80 not long ago. I certainly don't know, guess we'll see how the new owners make out.

The good news is that Rystad now models US costs differently than they used to. With newer data. Based on presentations coming from their ShaleWellCube, anyone might say their newest system is top notch.

I've pretty well given up on specialists in this area. Lots of well credentialed people predicted imminent doom over the years. And lots of well credentialed people poo-pooed the idea of peak conventional as well. The various "agencies" have been all around, the IEA was correct apparently in 2010 tho:

Crude oil output reaches an undulating plateau of around 68-69 mb/d by 2020, but never regains its all-time peak of 70 mb/d reached in 2006

I'm still waiting for someone to tell me what the price and chemical properties of this mysterious "conventional" oil is. Interestingly, no one has been able to yet. The world mostly drills for oil, the large volume exception being Canadian tar sands. If you subtract the Athabasca tar sands mining volumes (as opposed to their thermal recovery with offsetting horizontal wells) from global world oil volumes off of a production rate pre-pandemic of perhaps 80 million then apparently the IEA only missed their peak oil call by a decade, and 10 million a day?

Amusingly, the only peak oil claim from the 2000-2008 time period I am aware of that hasn't been discredited by volumes of oil, was the EIA with their 2037 call. If anyone knows of any organization or individual involved in the silliness of that time that still has an outstanding peak oil claim, I would love to hear about it.

[Pops]

I'm still waiting for someone to tell me what the price and chemical properties of this mysterious "conventional" oil is. Interestingly, no one has been able to yet.

You can certainly come up with a more original dig than that. LOL


Back to the surplus energy blog. I thought it was interesting because it draws a straight line from increasingly complex and expensive energy production to falling net GDP and increasing debt. The failing of shorts grand scheme is attempting to divorce it from price (unless the price is moving in the right direction of course) he cut off the route to what actually matters... oil price and its effect on the economy. Martin's argues that increasing oil cost and so price is the cause of diminishing returns, deflation, increased debt etc. is a much fuller view that embraces supply and demand rather than discounting it or even refuting it.

Increasing production costs limits supply at the previous lower price. For supply to expand and meet demand, selling price must rise. Actually that is a lot of what Tyverberg goes on about, "low price will kill supply." And the price must stay low to enable the wasteful uses that are so much a n integral part of the economy.


The OPEC repricing from real $20/bbl to real $40/bbl coincided with the first great gout of peacetime borrowing to combat the "stag" part of stagflation. The conventional peak/fracking repricing — to say $60, has apparently caused the second great bout of barely growing GDP and greatly expanded borrowing.

Note in this picture how borrowing as a % of GDP declined during the '90s as oil price fell back down to $20... then rose again even higher as oil price climbed into the $100s. Correlation isn't causation: yada, yada.

[Plantagenet]

Back to the surplus energy blog. I thought it was interesting because it draws a straight line from increasingly complex and expensive energy production to falling net GDP and increasing debt.

But there is no straight line relationship between GDP and the expense and/or use of energy.

Thats been clear for many many years.



There are wealthy countries who use lots of energy and poor countries who use lots of energy.

This is actually good news because it suggests the US and other countries can lower their energy use without sacrificing GDP.

Cheers!

[mousepad]

This is actually good news because it suggests the US and other countries can lower their energy use without sacrificing GDP.

you mean by outsourcing energy intensive industries to the 3rd world?
I'm wondering how them "clean" european nations would look like regarding co2 output if they had to count production of everything they import and consume.

Aluminum manufacturing requires an insane amount of energy. None of the biggest smelters is in the EU, ain't that convinient?
https://www.alcircle.com/news/update-to ... wo%20years.

[Plantagenet]

This is actually good news because it suggests the US and other countries can lower their energy use without sacrificing GDP.

...you mean by outsourcing energy intensive industries to the 3rd world?

No...thats your idea, I guess.

My idea is to promote greater energy efficiency within the US and other countries by improving and building out mass transit and modernizing the grid, and utilizing renewable energy to the greatest extent possible.

I'm wondering how them "clean" european nations would look like regarding co2 output if they had to count production of everything they import and consume.
Aluminum manufacturing requires an insane amount of energy. None of the biggest smelters is in the EU, ain't that convinient?
https://www.alcircle.com/news/update-to ... wo%20years.

You've just proved my point.

The largest aluminum producer in the world is in China, i.e. they are mainly using COAL to produce aluminum. That is so stupid its hard to believe. Even the Chinese must know that burning coal releases CO2 and is causing climate change.

In contrast, I've visited two major aluminum refining facilities in Europe----one at Ardalstanger in Norway and the second in Iceland....and they both are powered by clean, renewable hydro-power and both facilities are located very close to the hydro plants.

Obviously the folks in the EU are being a lot smarter than the folks in China, because they've figured out how to power aluminum plants without burning coal using free, renewable, and non-polluting hydro power.


The Jfardaal aluminum smelter in easter Iceland uses clean, renewable, non-polluting hydro power, unlike the filthy dirty polluting aluminum plants in China that run on coal.

Cheers!

[aadbrd]

I scanned through some of the blog posts and didn't find any real new ideas. Mostly the usual Peter Schiff debt bomb schtick which Armageddon parrots in the stock thread. Not that there really HAS to be any new ideas to describe where we are or where we're headed, mind you, but if I'm going to start reading a blog it would have to contain ideas that I haven't already considered. I'm not sure any such blogs exist. It seems everything's already been said already and we're just sort of seeing how things actually play out, given already-known factors.

[Pops]

The reason the site rang my bell is that like most people I knew that government debt was growing but I kind of considered it a budget problem, product of a dysfunctional government. Borrowing and inflation are better than either hyperinflation or deflation so whatever.

But here is the thing, I'm thinking now that the debt habit isn't the problem.

It finally dawned on me that without the borrowing, not only would GDP not have grown but subtracting out the borrowing, it would have been shrinking the last 50 years.

See? We've been on the precipice of deflation and depression since the '70s, constantly.



Look at the grey line in the chart, that is inflation adjusted GDP growth. Looks nice, growing steadily.
But consider, it includes all the goodies paid for by deficit spending and borrowing in general every year since the 1970s.

Now look at the yellow line, that is GDP growth minus the growth in debt.

Takeaway? Without constant fluffing the economy would be shrinking.

Diminishing Returns is the word. The question is why did we all of a sudden come up against a wall in the 1970s? Depending on who you ask you'll get the stock partisan answer—welfare, medicare, etc.

My thought is that the price of oil tippled after the US peak, about $130B/yr in a couple of years, right off the top—the entire US GDP at the time was only a trillion dollars. Right then is when Brenton Woods collapsed because .gov could either start pumping out the money or watch the economy dry up.

And why have we continued to prop up GDP since? I don't know any more than anyone else, but of course my knee-jerk is more expensive energy. Like I said before, $20/bbl average for 90 years up to the '70s—outside wartime— and at that time GDP growth was 5-15% pa.
Then $40 post US conventional peak, now $60 average after global conventional peak— and we're lucky to make 2% growth PA even with trillions of borrowing. Doesn't sound like much money but multiply it by 100mm/bbls/day x 365 days and it is a big number.

I find Martin's spiel familiar too. But it is more than just debt-bomb. It's about how cheap energy, like really cheap, fueled all that growth and without it we are going to have a hard time even treading water.


https://www.ceicdata.com/en/indicator/u ... onsumption
https://sites.google.com/site/globaloil ... production

[jedrider]

And why have we continued to prop up GDP since?

House of Cards, perhaps, or political expediency.

I think the USA is consuming more, so it feels that our GDP is increasing and the statistics show that, whether that is phantom GDP or even if it can be considered legitimate GDP. That's my take on our situation.

[Outcast_Searcher]

It finally dawned on me that without the borrowing, not only would GDP not have grown but subtracting out the borrowing, it would have been shrinking the last 50 years.

If person A buys a house or a car, it doesn't change the GDP, whether the money is borrowed or not. It's the production of the house or car that is measured in the GDP.

https://www.investopedia.com/ask/answer ... investors/

Please don't be like Armageddon. Either wave your arms at something REAL, re economic problems, or at least define them using real world definitions.

Too much debt is a problem re threatening currency stability and economic stability over time, but it's NOT a "GDP problem" just because some people call it one.