what it is ain't exactly clear

Don't know if I'm going up

or down

 -Jimi Hendrix

Golden years

Shu bop , shu bop

- David Bowie

Greetings

      The big story in American politics seems to be that both parties have lost touch with middle america.    And middle america isn't happy.   Now they are looking for someone to blame.   But you can blame the government, the plutocrats, or the Chinese, but that won't bring things back the way they were.   What's missing?  The surplus.   See Surplus - What is wealth

           But that surplus has at its root  - high eroi fuel.  And in particular high eroi oil, because after all America runs on oil. 

       Eroi for oil has been dropping for years, and it's been no problem.   The transition from 50 eroi fuels to 25, was not significant.    But recently its down around  10:1, and things are changing.

     This concept was illustrated by Murphy in the so called "energy cliff".    See  The Implications of the declining energy return on investment of oil prodcution

" This exponential relation between gross and net energy flows has been called the ‘net energy cliff’ [53] and it is the main reason why there is a critical point in the relation between EROI and price at an EROI of about 10 (figure 4).

.

Figure 4.

    So a change from 26 to 25 is not noticeable, but a change from 11 to 10 makes a big difference.

     So, where are we?     Here's what Hall and Lambert said in 2014.  See EROI of Different Fuels and Implications for Society

"The EROI for petroleum production appears to be declining over time for every place we have data. Gagnon et al. (2009) were able to generate an approximate “global” EROI for private oil and gas companies using the “upstream” financial database maintained and provided by John H. Herold Company. These results indicate that the EROI for publicly-traded global oil and gas was approximately 23:1 in 1992, 33:1 in 1999 and 18:1 in 2005 (Fig. 4). This “dome shaped” pattern seems to occur wherever there is a long enough data set, perhaps as a result of initial technical improvements being trumped in time by depletion.

Fig. 4.

"Gagnon et al. (2009) estimated the EROI for global publicly traded oil and gas. Their analysis found that EROI had declined by nearly 50% in the last decade and a half. New technology and production methods (deep water and horizontal drilling) are maintaining production but appear insufficient to counter the decline in EROI of conventional oil and gas.

So, in 2005 it was 18 and dropping a rate of 50% every decade and a half.   So if the trend continued, it would be now it would be about 12 and by 2020 it will be about 9.  

    These numbers may be conservative.  EROI is  generally measured   "at the well head"   Thus they do not always include the energy needed for refining and transportation.   But these activities are necessary before the oil can provide any benefit to society. .  Additionally, the "curve" may not be a straight line (see below) 

        So, if we were reaching the energy cliff, what signs should we loo for?   I, like many "peakists",  had long assumed that Peak Oil would lead to higher prices.   After all, economics 101 teaches that when supply goes down price goes up.    And between 2000 and 2008, the market seemed to confirm that view.     

         But when looked from the eroi perspective, things look different.   When eroi goes down,  oil  provides less useful surplus energy to society.  more energy that used to go to society is spent producing the oil.    Without that surplus, there is less economic activity, and  demand would go down.   And economics 101 says that when demand goes down , price goes down.

        So which is it, up or down?   Both!   The price goes up as oil becomes more scarce, but only for a while.   As long as eroi is above a critical threshold, eroi can be ignored.     But, as Eroi drops past 10:1, society willingness to pay drops too.  At  taht point the price is no longer controlled by scarcity, but but affordability.

     The Hills Group has a nice graph which illustation this.   I haven't bought the report, so I can't really see whether the particular numbers make any sense, but the idea makes sense to me.   

         They show two curves, one is an unconstrained price curve, which shows how the price would rise as oil becomes more difficult and more expensive to produce.   It slopes up.     The second curve is the affordability curve,    what the economy can afford to pay, as eroi falls.   It slopes down.   The Hills  Group asserts that the curves intersected in 2012 and that therefore the price of oil will fall, lower and lower.      ( And in fact, the price did fall starting in 2014, but it will take a while before we know what the longer term trend is.)    The Hills Group asserts that the affordibility curve, (and apparently the EROI curve),  is very steep, so that in a decade or so, there will be no market for oil ! see   here.  This would , of course cause "the Mother of all Seneca curves" see here

     So, what difference would it make to the rest of us?  If this is correct, he price of oil is low and heading lower.  That's nice for Happy Motoring.   In the short term, anyway.   In the longer term, low price means low profit, and this removes incentives for oil companies to find more oil.  Could this mean shortages?  Higher prices later?    Low prices also provide little incentive for the transition away from ICE transport.  There is likewise no incentive for people to walk, ride the bus, buy alternative vehicles .   These are the types of activities that would make an orderly transition away from oil       This approach provides a slightly different view of "peak oil".   Originally Campbell and Laherrere , in their seminal article The End Of Cheapo Oil fried "peak oil"  as a geological phenomenon, that would  cause economic consequences .    It may be more useful to see "peak oil production" as a symptom, of the underlying change - dropping eroi.

The Good Old Days (These Are)

You can't always get what you want

     -The Rolling Stones

Everything

All the time

     - The Eagles (Life in the fast lane)

Greetings and Happy Independence Day

        The fourth of July is a great day for political speeches.  Clinton, Sanders and Trump are promising that they can turn back the clock, and return the country to the good old days.  For interesting take on the politics of nostalgia see here  The good old days of high wage jobs, of high consumption.   But they fail to note what made that possible - cheap oil.     And the days of cheap oil are going fast.

       Art Berman has an interesting article in Oilprice:   Why we can expect crippling higher oil prices in the near future  .    .  Berman dryly notes:

"Those who want to make America great again recall the economic prosperity of 1987 to 1999 (Reagan-Bush-Clinton years) when real oil prices averaged only $33 per barrel."

       Today the price is $48, but over the longer term, its actually been much higher.   

"Since 2009, oil has never been more expensive. The average price in real May 2016 dollars is $83 per barrel, the highest in history (Figure 10). This average includes the year of low oil prices in 2009 after The Financial Crisis and the two years since the mid-2014 oil-price collapse.

"Even during the period of the oil shocks from 1974 to 1986, real oil prices were far lower, averaging $68 per barrel.

      (But even with these historically high prices, oil companies are having difficulty breaking even.  See  Oil bankruptcies spike 379%  (CNN)   One third of oil companies could go bankrupt this year (Fortune))

        Berman concludes we have arrived at "peak cheap oil", This is the peak that has real significance to our "normal" way of life.

"Those who believe that Peak Oil is a failed observation do not understand that it was never about running out of oil. Peak Oil was always about running out of cheap oil. That is an indisputable fact."

         In this environment, the producers take on debt waiting for the price to rise, while consumers take on debt waiting for it to fall.

 

"Like a disease, the high cost of energy and debt, its corollary, have drained the life from our global economy over the last several decades. The economic benefits anticipated from lower oil prices after the price collapse did not materialize because prices never stayed low enough for long enough.

"The economic problems that lead up to the 2008 Financial Collapse included high oil prices from 2000 through 2008. The massive new debt that was incurred to remedy that crisis as well as even higher oil prices have thwarted a recovery.

See also this article;  Oil - Interest Rates and Debt

Will higher prices bring on another oil glut?  Berman doesn;t think so He says:

"Many talk hopefully about renewed drilling now that oil prices are near $50 per barrel. I doubt that prices will stay at $50 but will, instead, follow the 2015-2016 pattern of cyclicity. Prices should trend higher but I don’t expect a major shift to new drilling or a return to the peak production rates of 2014 and early 2015. The industry is wounded and will not heal for many years if ever.

Tight oil may have bought us a few years of abundance but the resulting over-supply, debt and prolonged period of prices below the cost of production have exacted a terrible cost. Under-investment, a damaged service sector, weak oil company balance sheets and a decimated work force practically ensure cripplingly higher prices a few years in the future.

        Berman is not alone.  Wood Macenzie, notes that oil companies are spending less, and that last year there discoveries lagged, only replacing 75% of the inventory sold.  see here

       So where do we go from here?    The result so far anemic growth in the economy,  or if GNP growth is adjusted for inflation, we are already in a recession.   see here    

      Richard Heinberg and David Fridley have put out a useful book Our Renewable Future, which addresses  this situation as well as a number of others.  It is worth a look.   (Happily the book is available in an online format)  They note that part of the solution for the end of cheap oil will be found in electric vehicles, but only part.   Electric car sales have been growing rapidly, and could conceivably replace ICE vehicles in that sector.

"There are currently roughly 750,000 road-legal electric vehicles (EVs) globally, and the rate of growth in the market is a spectacular 76 percent annually.[5] The United States has seen a growth rate of 69 percent annually, with about 300,000 vehicles now running on batteries.[6] At this growth rate (roughly a doubling every year), the EV market in the United States could grow to equal the size of the current auto fleet in just a decade—though almost no one expects that to happen, as about half the gasoline-powered cars now in service will still be operational in ten years, and the vast majority of automobiles still being sold have conventional combustion engines."

But, so far consumers seems to be going in the opposite direction,  see this:     American Drivers Regain Appetite for Gas Guzzlers (NYT)

"The single most effective action that most Americans can take to help reduce the dangerous emissions that cause climate change? Buy a more fuel-efficient car.

But consumers are heading in the opposite direction. They have rekindled their love of bigger cars, pickup trucks and sport utility vehicles, favoring them over small cars, hybrids and electric vehicles, which are considered crucial to helping slow global warming.

So far this year, nearly 75 percent of the people who have traded in a hybrid or electric car to a dealer have replaced it with an all-gas car, an 18 percent jump from 2015, according to Edmunds.com, a car shopping and research site.

Trucking is a more serious problem.  Heinberg and Fridley point out that

"While a large majority of vehicles on the road are used to move people, 99.9 percent of the total weight being transported on US roads (not counting the vehicles themselves) is goods that we consume.[12] But large, heavy vehicles such as trucks, tractors, and cargo ships require batteries too heavy to be practical in most instances, particularly if they are traveling long distances. "

See also  Where are the Electric Trucks ?   

You may have seen that Nickolas Motors is taking pre orders on its "soon to be released" battery powered semi, which some have suggested "proves" that an electric long haul trucks are in our future

But at this point, no one knows whether this idea can really be built as advertised

Here is one analysis from the Institute of Electrical and Electronics Engineers:

“As you might expect from a startup, all of this stuff sounds pretty great. But we’re obligated to point out that there are a lot of grand plans but little in the way of execution. Furthermore, this level of hype always makes us vaguely suspicious, especially when the one number that we can actually fact check, the preorder amount, is at best confusing and at worst deceptive. That “$2.3 billion in presales” refers to 7,000(ish) deposits to reserve a truck worth approximately $375,000. But each deposit is a fully refundable $1,500—not the full $375,000—meaning that Nikola Motors has received slightly over $10 million. It’s a significant amount of money, but that $2.3 billion isn’t really meaningful at this point. Nikola Motors says that it will unveil the Nikola One prototype on 2 December in Salt Lake City, Utah. And if it’s everything Nikola Motors says it is (or even mostly everything), we’ll certainly be impressed. Technology like this could be an enormous benefit for the trucking industry. However, as with all things that seem just a little bit too good, we’ll be reserving our judgement and excitement until Nikola manages to deliver on its promises.”

      For a reflection on the importance of trucking see When Trucks Stop Running
         As most people know most of the remaining "cheap oil" is located in the Middle East.  So as you watch "the bombs bursting in air"  and the flyovers of the Blue Angels, you might want to reflect on what happened after the last oil crisis. see here   

"...the 1980 Carter doctrine, which states “the overwhelming dependence of the Western democracies on oil supplies from the Middle East…[any] attempt by an outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”

Since then we’ve invaded, occupied, or bombed Iran (1980, 1987–1988); Libya (1981, 1986, 1989, 2011); Lebanon (1983); Kuwait (1991); Iraq (1991–2011, 2014–present); Somalia (1992–1993, 2007-present); Saudi Arabia (1991, 1996); Afghanistan (1998, 2001–present); Sudan (1998); Yemen (2000; 2002-present); Pakistan (2004-present); and now Syria.

Have a safe holiday.