The Chatelaine's Keys

Sharon May 31st, 2009

A while back, Kiashu had a post, in which he debunked the commonly held perception (so commonly held that people are still repeating it – Toby Hemenway repeats this claim in his recent essay “Is Food the Last Thing To Worry About?” for example) that Cuba lost almost all or half of its oil imports after the collapse of the Soviet Union.  Kiashu establishes that actual oil consumption in Cuba dropped only by about 20%. 

 What is the case is that a 20% drop in oil imports caused massive disruptions in Cuban society – some of them undoubtedly because their government was full of idiots (since my government has no idiots in it, I know I’m safe from this particular problem ), but also because despite the fact that there remained plenty of oil for agriculture and basic needs, the loss of a compareatively small amount of oil meant a massive allocation problem.

In the United States, we can see how small losses also add up – for example, the 1970s oil crisis was precipitated by a 5% reduction in imports – that’s all.  Those who remember the gas lines and the economic dislocation may have assumed that something much more serious occurred – 5% is very little, after all, and even in the 1970s, we had plenty of room for belt tightening, as we found when we responded.  But the economic and structural implications of a small decline were much greater than most people might have predicted. 

There are plenty of other examples of small things becoming big things.  Looking at the current mortgage crisis, I’ve seen numbers that range between 6-9% of mortgages may have been “troubled” assets at the start of things (now many more mortgages are troubled, because of the crisis) – that is, it wasn’t the case that half of all those assets were bad – a small percentage was sufficient to bring down a good chunk of the global economy, simply because there was so little resilience in the system.

The food crisis was precipitated by a comparatively slight tightening of world grain supplies – overall, about 10% of the world’s grain harvest disappeared into fuel tanks, pushing almost a billion people back into poverty, and adding millions to the rolls of the starving. 

I’m hardly the first person to notice this, but it is important to note that complex systems tend to create situations where reverbations from small disruptions become extremely vast.  Which means that analyses of our absolute capacity, or waste in the system, don’t always help us.  That is, when people sit down and say “but the US produces X amount of oil each year and that’s sufficient for these four or five essential  projects” – that is indeed true.  It just isn’t all of the story. 

 Or when we observe that 25% of food or energy is completely wasted – that’s true, and much can be done to reduce waste.  But a waste free society has never been achieved, at least on this scale – that is, there will always be losses, there will always be failures and wastage – and when you get close to the systems’ limits in any respect, small losses can become large.  I think Gail the Actuary articulated this best when she said,

“I’ve discovered when you say, “There may not be medications”, I get a lot of arguments that this is the highest use, so of course we would have medications, even if we had nothing else. Also, if I say there may not be plastics, someone believes that since they take such a small share of the petroleum, surely they will be spared. And so on.”

The reality of our situation is that whatever balance we eventually strike in a world of shortfalls, we are likely to leave some needs – probably many needs – inadequately met.  There will always be competing priorities, many of them compelling, many of them compelling to those in power. 

All of which makes the IEA’s report on the decline of energy investment more disturbing – the IEA had already predicted substantial declines, with adequate investment – now we get confirmation of what many of us had already expected – that adequate investment is simply not occurring.   They also confirm that if the economy does recover, we are likely to see another high oil price spike – and probably another economic crisis, in response, if the work of James Hamilton and others are correct.  That is, it may no longer possible to grow in any meaningful sense.

Will this cause structural problems?  I don’t know the answer.  But I do think that the public discourse must include the recognition that it doesn’t require a large dislocation, a vast decline, in order to create a crisis.  Even small things matter.

 Sharon

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Sharon November 1st, 2008

Some people take drink or eat chocolate when bad news strikes. I go out to the barn and milk the goats (ok, I eat chocolate too sometimes ;-)).  You see goats, (whose motto is “We’re people too, and would you mind if we came inside with you and stood on your dining room table for a bit.”) do best if you keep their routines intact (think of them as toddlers with hooves) – so no matter what is on your mind, how busy you are with other things or what kind of mood you are in, you have to go out to them.  They have to be brushed, fed, enticed to their spots, you have to lean your body against their warm one, and you must immerse yourself in the rhythym of milking.  And it is almost impossible, by the end, to be in the same place in your head that you were when you started.  They are too real, too concrete – the abstractions tend to settle down.

What on earth does this have to do with oil depletion?  Well, not much, actually – except that the last couple of days, what I’ve taken out to the barn to my two little fuzzy therapists has been the new IEA depletion rate.  And the problem I keep taking out there is this – how can I or anyone else make something as resolutely unsexy, as deeply, eye-glazingly dull-seeming as oil depletion rates, appear engaging enough to actually get people to understand how much this matters.  I thought I could do worse than starting with the cute goats . 

Earlier this week, the Financial Times leaked the International Energy Agency’s figures that show the rate of decline in production of the 400 largest oilfields in the world – and they concluded that without large scale, above normal investment, the annual decline will be 9.1%.

It is hard to understand how important that number is, particularly given the situation we are in right now.  In an excellent essay on the subject, Richard Heinberg observes,

“Considering regular crude oil only, this means that 6.825 million barrels a day of new production capacity must come on line each year just to keep up with the aggregate natural decline rate in existing oilfields. That’s a new Saudi Arabia every 18 months.”

This is huge news, and it got very little media attention.  If you did read it online or in your morning newspaper, your eyes probably did glaze over a bit, unless the implications were teased out in the article. 

In order to fully understand these implications, you have to have some background about what we’ve known or suspected about oil for a while.  The first thing most articles don’t tell you is that we’re not discovering anything like enough oil to keep up with that figure.  Now I’m something of an energy geek, so I keep track of this stuff, but most of us, if we read the papers, hear about big discoveries in Brazil or the Gulf of Mexico, about offshore drilling and ANWR and think we’re pretty well set on discoveries.  In fact, that’s not true.  We’re not replacing the oil we’re extracting with new discoveries, mostly becauses we pretty well know where the oil is.  Oh, we find new barrels – but only one for every six we consume.

And the other thing you would have to know is that we’re shifting from what we might call “easy” oil – the kind that comes pumping out of the ground without too much effort, to oil that is pretty tough to extract. In some cases, our new discoveries, like the Bakken oil shale are places we knew there was energy that could theoretically be extracted, but it was so expensive, and so difficult, and so energy and water intensive that it wasn’t worth bothering.  We can talk about new discoveries, or new technologies, but it is really important to realize that when we compare a newly discovered barrel of oil with a played out field in Saudi Arabia, we aren’t necessarily comparing equivalents.  First of all, it may take a lot more energy and money to get at that oil in the first place – and that money may not be available when we want it.  When oil prices shot up to $125 barrel, some of this new oil started to look pretty good – but falling back under $70, its not so easy.  We’re already seeing new energy projects being put into mothballs due to the financial crisis.

Second, a lot of what we’ll be getting isn’t the easiest oil to use – there are multiple kinds of oil out there.  The most desirable sort is light, sweet crude.  That needs refining, but not nearly as much as heavy, dirty oils – and now we’re getting a lot more heavy, dirty oils that cost more energy to clean up, and are expensive to produce, and not that efficient.  The two kinds of oil aren’t really equivalent – think of it as though someone took your beer and replaced it with an equal volume of Tab – they are both somewhat carbonated liquids, but they don’t really produce the same results.

Now I’m unashamedly a peak oil activist.  The media is presently declaring peak oil to be a hoax, something that they were willing to consider when oil prices were high, but now that they are low, something to be dismissed.  That’s because they’ve never understood what peak oil was – no one has ever claimed we were running out of oil.  What has been claimed is that we were running out of cheap oil – the days of stable low prices and easy supplies are over.  Peak oil was never about price – yes, if we’ve passed the halfway point of extraction, prices will probably go up.  But the key word is not “expensive” but “volatile” – that is, of course if rising energy prices help tank the economy, the cost of energy that people can’t afford to buy will go down.  And they’ll probably go up again, too, just at the moment most of us find it hard to pay.  That’s pretty much common sense.  The idea that it is only peak oil if the price goes up every time is just wrong.

Now here’s what you most need to know about these numbers – I can’t speak for any other peak oil activist, but they are much higher than I expected.  And that’s really bad news.  There has been a lot of speculation over the years about what the decline rate really is, and there are a lot of smart people out there who have good and useful cases on this subject.  Matt Simmons, for example, author of _Twilight in the Desert_ and Jeffrey Brown, the creator of the Export Land Model have both been telling as many people as they can that the decline rates, for a host of reasons, are going to be higher than most people expected.  Maybe they anticipated this.  But I sure didn’t.  And I don’t think most people did. 

We’re not going to find the equivalent of a new Saudi Arabia every 18 months – most of the new discoveries you’ve heard about in the media are a long way from development.  And the biggest thing needed to keep up oil production is a lot of investment money – precisely the sort of thing that is disappearing in the credit crisis.  Peak oil folks get accused of having too bleak an outlook – but right now, I don’t think it would be inaccurate to say that most of us have actually had too rosy an outlook – we’ve been expecting a depletion rate considerably lower than that.

What about renewable energies?   Can they take up some of the slack?  Well, they could if we were building them rapidly enough – we aren’t.  And they are facing the same failures of investment capital that new oil extraction techniques are.  They need money. Not only that, they need a lot of fossil fueled energy.  That last part may sound kind of crazy – solar and wind need a lot of fossil fueled energy?  Absolutely – there’s not a plant out there making solar panels that doesn’t depend on a stable supply of oil, and certainly most of the US ones depend heavily on coal-fired electricity as well.  Getting those wind turbines set up means a whole lot of trucks using diesel fuel.  In itself, that isn’t a problem – but let’s imagine you have to replace 9% of our oil production every year with those renewables – that is, that not only is our oil production likely to see a decline, not only are we already struggling to match demand from other places, but now a large percentage of our incoming fossil fuels have to be allocated to a build out of renewable energy.  Could that be done?  Sure – it would be a lot like living in World War II, where everyone was serving a greater project, but it could be.  But it hasn’t been, and I have my doubts that it will.

Now everyone in the peak oil community has their project, and their particular niche.  Some folks chase down the data, deal with media or start up this project or that – and there’s so much to do that I personally can’t help but be grateful to everyone.  Here’s what I’ve been doing – in the simplest possible terms, I looked at the scale of the problem, and I looked at our response (not much so far), and I came, broadly, to this conclusion.  We might screw it up.  Oh, it is possible that I’m underestimating human ingenuity, and that we’ll do everything right.  On the other hand, it seemed like having some kind of contingency plan for a scenario in which we did not replace all our energy infrastructure rapidly, where we did face tight supplies, volatile prices and perhaps an economic depression, in part created by our situation was a good idea.

So that’s what I’ve been doing all along – at the same time that I nightly pray that we’ll get our act together, my own relationship to this (since the other best cure for worry, besides goats, is action) is to get as many people, and communities, neighborhoods and other groups ready to deal with less energy, less wealth, less security as possible.  And I have to say, learning that the decline rate is 9.1% makes me feel that my strategy has mostly been the right one. Because that’s a huge and shocking number – we’re already running as fast as we can to keep in place.  We can reduce our demand some (in fact, it seems that the economic situation will probably do that), and we can increase our investment as much as possible, given the constraints of our debt and resources.  But in the end, we’re probably going to have to make our transition to new energy supplies more gradually than most of us like or are prepared for.  We’re probably going to have to make do with a lot less.

The good news is that that’s not such a bad thing.  There is hope here – yes, the cheap energy is going away (whether in the form of rising prices or our simple inability to pay the bills) – but that’s not the end of the world.  Merely a vast challenge – and challenges can be met – maybe we won’t have all the energy we want, but we have the courage to live differently.  But before we can meet that challenge, we have to know what we’re facing.

Sharon

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Sharon September 11th, 2008

As long as we’re talking about genre fiction (our Dies the Fire discussion managed to get two comments from SM Stirling himself, btw – check it out!), I was recently reminded of my forays, a while back, into George R. Martin’s deep, dark, sprawling, sometimes brilliant and often nihilistic fantasy saga that starts with _A Game of Thrones_. One of the bits that struck me most (and the part that’s even remotely relevant to this post) was that the motto of the Northernmost kingdom is not something heroic, but simply this “Winter is Coming” – the idea is that in a society where winters can last for decades, the people of the north cannot afford ever to lose sight of the fact that winter is approaching.  And I don’t just say that because it was 38 F last night here . 

I feel rather that way about my own life. I live, as you all know, in the Northeast United States, and up until the last few decades, it was never possible for anyone to live their lives in my area without a constant, heightened awareness that winter was coming. Until fossil intensive routine road plowing and just in time supermarket delivery, winter required preparation. We seem to be on a rapid transition back to that model, at least in the Northeast, which relies heavily on costly heating oil. It may be that the strengthening dollar, short selling of speculators and other factors may lower the price of heating oil to affordability before winter, it may also be the case that refining capacity problems caused by Hurricane Ike, may offset our recent declines. In either case, the US is plunging into a solid Depression, and the ability of people to pay their heating bill may end up being less about the cost of heating oil per se than their ability to pay any bills at all anymore.

Meanwhile, the level of fear is rising in my region of the country and in other cold places. I’ve had more than one person tell me that they are worried about freezing to death in their homes, and a number of people ask how they will afford food and medication this coming winter, along with heating. Those relying on natural gas and electricity have both seen large jumps in price as well. In Britain, there’s a national call to relieve the crushing poverty of elderly war veterans, who cannot afford adequate food or heat.  South Dakota’s fuel assistance program is already anticipating it will go broke by November helping people get an initial fill up.  In Alabama, one of my readers, Rebecca reports a growing trend towards utility companies reporting homes not in foreclosure as “condemned” – while people are still living in them, so that they can shut people off with impunity.

Meanwhile the Low Income Heating Assistance Program that provides federal aid across the board is likely to struggle to meet growing demand and increased costs.  Most states are seeing an increase of 10-30% in applications for aid already, and in many states, as many as four times as many people qualify for aid as the programs can serve.  Meanwhile more and more lower-middle income families are likely not to qualify for anything, but need it.  An average 20% increase in the cost of heating, plus the fact that as many as one in ten American households is already in debt to a utility company means that the winter is shaping up badly.  And President Bush’s LIHEAP allocation of 2 billion is 22% less than last year’s funding.

And we know this.  New England governors are already declaring states of emergency.  I have heard many reports that wood, pellet and even coal stoves are backordered for months.   Heating is the conversation topic out where I live.  And most people know that they are going to be cold this winter.  Now in some respects, this will probably be good for us and the planet – for solidly middle class people who keep their jobs, turning their heat down from 70 or so would be a huge environmental step.  But for the poor, who already struggle to eat and heat, this will be a disaster.  And my guess is that the climate net will be a loss – as people chose even dirtier methods of keeping warm, cutting down the great Northeastern forest, returning to coal, using older woodstoves because they cannot afford newer ones, shifting to coal-generated electric space heaters to replace natural gas or oil.

Disturbingly, my guess is that this winter will go down in history, not as the one where it got bad, but the last good one.  The US is still able to borrow money, the Depression has not fully hit, and unemployment, while up, is no where near where it is likely to go.  One in ten Americans may be overdue or in foreclosure on their property, but they still have their houses. Heating assistance programs and other subsidies are stretched, but still available.  And in this election year, the pressure to keep the money coming and people warm will be greater.  It is next year I worry about most.  It isn’t just this winter that is coming.

With our fears, comes the rapid shift back towards a life in which winter is *always* coming.  Those who need stoves must think about this long before winter – as must those who want pellets.  If you plan to cut wood, it should ideally be cut during the previous winter to allow a full year of seasoning.  And to pay increasing heating bills will probably require those who can afford it at all to space their bills over the course of the year.  Because rising heating costs will impact our ability to buy food, growing our own and preserving it for the winter becomes one of the necessary hedges against the disaster.  As towns and cities are strapped by lower property taxes due to falling real estate values and higher energy costs, there may be more of us staying home more – when the roads can’t be plowed, when other infrastructure problems arise, when schools can’t be opened or buses run (many school districts are already considering a 4-day school week).  Utility companies are concerned about widespread power outages and people convert suddenly to electric space heating.  That is, winter is about to go back to being cold and dark, a time to stay home, and a time when you have to be prepared for systemic interruptions.

Does this mean, as some have suggested, that those who live in cold climates will migrate en masse down south?  I don’t think so – some will, of course.  But the north has been populated by human beings for a long, long time, and we somehow survived without central hot air heat and being able to go out for beer in a blizzard.  Warmer regions have their own disadvantages in the face of global warming. 

I think we will adapt – and that adaptation will be part of a larger cultural and psychological shift at least partially back to a cyclical worldview, shaped by your climate.  It was not for nothing that New Englanders were known for stoicism, frugality, practicality and hard work – those are virtues that go along with a world in which winter looms large.  It won’t just be the cold climates moving towards a cyclical life – drought in some areas of the west, for example, will shift life there to focusing around the rains.  Those living without electricity in the Southeast will again shape their summer days around quiet times in the hottest part.  We are all bound to live more in our climate than we have been.

The unusually early cold weather here helps make that shift – even those furthest removed from natural cycles moves a little faster when the cool weather hits, when summer’s heat disappears and the mornings are brisk.  It is our bodies and unconscious responding to the cues laid down by millenia of life in northern climates – squirrel time, it tells us.  Once again, Winter is Coming.

 Sharon

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Sharon September 3rd, 2008

A couple of years ago, I got to hear both Richard Heinberg and Matthew Simmons warn that one of the biggest concerns we faced in the coming energy decades was not so much consistently rising prices, but oil price volatility.  That is, as prices fluctuate dramatically in response to situational issues, supply constraints and changes in demand, the prices fail to send a consistent message that we can respond to.

As Heinberg writes in his book _The Oil Depletion Protocol_, “….as oil production declines prices will almost certainly rise, although probably in unpredictable increments.  Prices will become more volatile”  It is worth noting that “volatility” doesn’t mean – a perfectly consistent, extended rise in price – it means rapid fluctuations.  And, in fact, that’s what we’re seeing – oil rose dramatically this spring and early summer, and has now declined again.  A number of people are wondering whether our summer spike was an indication of anything at all.  By the time oil dropped back into the low 120s, there was news that SUV sales were going up again.   Now the voices are coming out of the woodwork, saying it was never peak oil after all.

And they have some justification.  A lot of people, not excluding myself, got a little heady with all the sudden attention to peak oil ideas – all of a sudden the mainstream media comes calling and everyone is talking about the price of oil  -and how it might go up further, to $200 barrel, $300…. sometime next week.  It was very tempting (and I personally sometimes succumbed) to convince oneself that the trend was going to continue and that we were now going to see a clear and direct “PEAK OIL IS HERE!!!” neon sign flashing – and to read events as proof peak energy.

But, of course, I knew (and most other commentators knew) that that’s neither how markets work nor how peak oil is likely to go.  In fact, among ourselves, when we’d talk, most of us would say things like “I can’t believe how fast it is happening.”  And often, when you can’t believe how fast something has happened, that’s probably a good sign that it will do something else soon enough.  This is worth remembering.

Now some of the price spike was almost certainly driven by speculation, as we discussed, as among other people, Greenpa kept reminding us - Nate Hagens has a great piece over at The Oil Drum on just that point.  But a lot of it was about market fundamentals – the fundamentals of supply and demand.  Supply is up a little bit, and demand is down – what is different between now and this past spring is pretty simple – most Americans have spent their stimulus checks, they have heard the news about driving vacations and they’ve seen the writing on the wall financially.  Meanwhile, Britain is officially in a recession, the Olympics with their massive energy push are over, and a lot of countries are headed into a recession or depression – and people don’t have money for gas.  Meanwhile food prices remain high, which means that the new middle class in developing nations has less money to spend on gas and other energy powered things.  We paid a lot of our money out to energy producing countries, and now we don’t have it any more to buy with.

And just as Heinberg and others have pointed out – we’re more endangered by price volatility than by consistent prices rises.  The next time oil prices jump near $150, how many nay sayers will there be, pointing out that they came down before, right?  Instead of spending their money reinsulating, people will say “Well, I guess I can handle these high energy prices one more year, right?  Next year they could be cheaper.”

Which ignores the fact that lower energy prices aren’t actually a good thing.  Everything I wrote here is still pretty much true and getting worse.  The power crisis in 100 nations is more acute than ever.  Energy prices are still squeezing farmers, and the farmers who couldn’t afford to plant at all in poor countries still have empty fields and hunger to worry about.   The winter heating crisis may be 22% less acute in terms of price, but in terms of people who are losing jobs and no longer can put things on their credit cards, it may actually be worse.  Deflation isn’t really a lot of fun.

But what happens when we get too excited by any short term trend is both a loss of credibility by those who see things only in the simplest possible terms, and also, a loss of the right message – the story doesn’t get through, and we all pay a price.  Volatility is one of the clearest signs that we’re near the peak – and one of the most dangerous ones across the board, even for those, like me, who should know better.

 Sharon

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Sharon June 8th, 2008

So oil went up $11 on Friday, while the stock market dropped 3%.  Unemployment is up, and reports of a recovery are greatly exaggerated.  And most importantly, the word bubble is started to get scraped off the oil price jump:

But many analysts say that fundamentals, not speculation, are driving prices.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before a Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed to a confluence of trends that has contributed to the oil price rally, including a weak dollar, strong energy demand from emerging economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

Who’d a thunk it?  You mean peak oil is a real thing?  Shocked.  Shocked, I say!  Note that this is the New York Times, not me . 

But more seriously, let’s be blunt, even for the best prepared of all of us, this sucks badly.  All of us are feeling the scraping at our budgets, at least a little, and I know that some people are really hurting.  So I thought it would be worth doing an update on how this is looking in your neck of the woods?  How’s your family doing?  What you are seeing in your neighborhood that you haven’t seen before?

The New York State Budget strips the Universities pretty badly, so Eric is losing a lot of sleep about his job.  Now we made the choices we did pretty consciously – he doesn’t have tenure.  He’s been offered tenure track jobs at smaller Universities (he wants to teach, not do bench science), but turned them down because our long term estimate was that all of them were more likely to either dump him before he got tenure or go under completely if the economy tanked.  Eric teaches one of the largest classes at his University – 1/4-1/3 of all SUNY Albany students go through is class, so he makes the University literally millions of dollars a semester, and they pay him about half what they’d pay a similarly qualified research scientist.  Our bet was that Eric will look like a good deal to the University.  We may lose that bet – of course, we could lose the other way around.  But it is tough on him, because he loves, loves, loves his work. 

Otherwise, we’re not hurting too much, although we may have to cut back on stocking up a little.  We’re lucky – Eric’s off for the summer and so we’re hoping to go to driving only two or at most three days a week, and of course with the garden kicking in, and a reserve of stored food mostly bought at lower prices, we can economize.  The problem, of course is that I’m reluctant to dig into stores right now, since I think times are only going to get tougher all around. 

Lots of new gardens popping up around here, and lots more people asking me serious questions about energy and the economy.  The place I’ve gotten some plastic buckets from is saying they’re going to have to start charging me, and that’s ok - their costs are going up too.  A fair bit of economic strain among folks I know.  But mostly, a lot of hoping and praying that things will get better while there’s still a little hope of fixing the worst. 

 How about you?

 Sharon

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