Where we are

Greetings Peaksters

I recently stumbled upon a nice blog by George Mobus, a professor at UW (Tacoma) who has recently done some work with Charles Hall. see ( http://questioneverything.typepad.com/question_everything/2009/12/economic-dynamics-and-the-real-danger.html I am just starting to work through his website, which is very interesting

Below is a picture of what is happening. A couple of things jump out to me. The first is that the graph is not a bell curve. Instead we find that humanity uses the easy energy first, then later when the hard energy is all that is left, the costs are too high, and production drops off rather steeply. This is somewhat different than the Bell Curve we are used to seeing in the Hubbert models.

He says: "The increases in energy costs as a result of the Best-First principle are shown in Graph 1, along with gross and net energies. This model is based on an increase in extraction difficulty as a result of depletion. It does not depend on an explicit logistic function and can be seen to not be symmetrical about the peak of gross energy extraction."

Secondly note there are two peaks. One for gross energy. That's the number that gets reported by the IEA et al. But probably more significant is the peak in net energy,. From that point of we have less and less extra energy to run the rest of the economy. He suggests that the net energy peak will precede the gross by about 30 years.

"Now we are either approaching or already past point C. Peak oil may not be the same as the peak of total energy flow, but it is probably pretty close. The reason is that oil is the most usable of all the fuels we use. It takes a lot of diesel fuel, for example, to remove mountain tops and dig the coal seams as well as transport the coal to the power plants. So oil plays a role as a king pin energy source. When it reaches the peak of extraction rate, the costs of extraction of other fossil fuels will surely start to climb meaning that total net energy will decline.

One of the semi-surprising results of my physical model is the revelation that the peak of net energy precedes that of gross energy by some number of years, perhaps ~30. This makes sense on first principles and if we are near or approaching the peak of gross energy extraction then we have likely already passed the peak of net energy — the energy we absolutely need to maintain our civilization."

Question Everything: Peak Energy - Peak Economy

He takes this analysis one step further by looking at wealth . As we know all too well, these days productive enterprises are not funded through savings, but through debt. Debt is the promise to pay later once the enterprise succeeds. But will the enterprise succeed in an environment of declining net energy? Not according to Mobus.

Graph 2. Assets are produced as a function of net energy according to the equation above. This graph is for the aggregate of all asset types as described above. Assets decay or are consumed at a rate less than production as long as net energy is in its pre-peak phase. Assets continue to accumulate and the peak of asset accumulation comes after net and gross have both peaked.

. "The vertical line marked ‘today’ is an arbitrarily placed marker for peak oil, presumed to have already happened (reports on various energy web sites strongly suggest this). If this is the case, then we are already into the red region where it is impossible to create debt-based financing (legitimately) since there is absolutely no possibility of paying off that debt with future work resulting in greater asset accumulation. Is it possible that this is exactly the problem we are seeing in our heavily debt reliant economy today? Our financial systems have clearly gotten out of sync with our real asset producing economy. We are in the throes of debt-unwind and very possibly massive defaults as nations, corporations, and individuals (who have no jobs) are incapable of promising to work more in the future to pay back their obligations. Those who would loan money (claims on assets) to those who propose to create new wealth would do well to reconsider since the model suggests that it will be impossible to even get back the principal, let alone the interest."

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     Which sounds eerily similar to Heinberg's  recent essay   http://www.energybulletin.net/stories/2011-01-20/limits-debt  where he does a nice job of describing the various categories Governmental, personal institutional, and Charlie's favorite "delusional" (financial)

"A single statistic is revealing: in the U.S., the ratio of total debt to GDP rose to more than 300 percent by 2005, exceeding the previous record of 290 percent achieved immediately prior to the stock market crash of 1929. External debt, what the U.S. owes the rest of the world, increased to $3 trillion, this capital balance having been in surplus just a few years previously.

 

Remember: in a system in which money is created through bank loans, there is never enough money in existence to pay back all debts with interest. The system only continues to function as long as it is growing.

 

So, what happens to this mountain of debt in the absence of economic growth? Answer: Some kind of debt crisis. And that is what we are seeing"