The Roman Philosopher Lucius Anneaus Seneca (4 BCE-65 CE) was perhaps the first to note the universal trend that growth is slow but ruin is rapid. I call this tendency the "Seneca Effect."

Monday, January 10, 2022

How to keep gasoline prices low: bomb your gas station

 

An Italian fighter plane (note the "fasci" symbols on the wings) shot down in England in November 1940 during the bombing campaign mounted by the Italian Air Force during WW2 (source). Sending obsolete biplanes with open cockpits against the modern British Spitfires is one of the most glaring examples of military incompetence in history. Among other things, this old tragedy may give us hints about the current situation in the world and, in particular, why the consumers of fossil fuels tend to bomb their suppliers. 



Not everyone in Europe has understood exactly what is happening with gas prices, yet, but the consequences could be heavy. For a brief moment, prices rose of a factor ten over what was considered as "normal." Then, prices subsided a little, but still remain way higher than before. Electricity prices are directly affected by the trend and that is not only traumatic for consumers, but also for the European industry. 

So, what's happening? As usual, interpretations are flying free in the memesphere: those evil Russians, the conspiracy of the Americans, it is all a fault of those ugly Greens who don't want nuclear energy, the financial lobby conspiring against the people, etcetera.

Let me try an approach a little different. Let me compare the current situation with that of the 1930s in Europe. Back then, fossil fuels were already fundamental for the functioning of the economy, but coal was the truly critical resource: not for nothing it was called "King Coal."

The coal revolution had started to appear in Europe in the 19th century. Those countries that had large coal reserves England, Germany, and France, could start their industrial revolutions. Others were cut off from the bonanza: the lack of coal was the main cause of the decline of the Southern Mediterranean countries. The Turkish empire, the "sick man of Europe," was not really sick, it was starved. Of coal. 

But it was not strictly necessary to have coal mines to industrialize: it could be done by importing coal from the producing countries. Sailing ships could carry coal at low cost just about everywhere in the world, the problem was to transport it inland. Coal is bulky and heavy, the only way to do that is to have a good network of waterways. And having that depends on climate: the Southern Mediterranean countries are too dry to have it. But Northern Mediterranean countries had the network and could industrialize: it was the case of Italy. 

Italy went through its industrial revolution much later than the Northern European countries but succeeded using British coal. That, of course, meant that Italy became dependent on British coal imports. Not a problem as long as the two countries were friendly to each other. Unfortunately, as it often happens in life, money may well take the priority over friendship. 

In the early 1920s, coal production in England reached a peak and couldn't be increased any more. That, of course, led to higher prices and cuts in exports. At that time, nobody could understand how depletion affects production (not even nowadays people do). So most Italians took the reduced coal supply from Britain as a geopolitical attack. It was an evil strategy of the decadent plutocracy called the Perfidious Albion, specifically designed to harm the young and growing southern countries.  

The Italian conquest of Ethiopia was the turning point of the struggle. Britain reacted by stopping the exports of coal to Italy. That, and other international economic sanctions, pushed the Italian economy, already crippled by the cost of the war, to the brink of collapse. Given the situation, events played out as if following a prophecy written down long before. Italy had to rely more and more on German coal and that had obvious political consequences. 

The tragedy became a farce when old Italian biplanes tried to bomb Britain into submission in 1940. The campaign lasted just two months, enough for the Italian contingent to take heavy losses before it was withdrawn (*). It was not just a tactical blunder, but a strategic disaster since it gave the British and their allies an excuse to bomb Italy at will. Which they did, enthusiastically and very successfully. 

The curious thing about this disastrous campaign is how it inaugurated a tradition: bombing one's supplier of fossil fuels. Italy's bombing of Britain was just the first of a long series: in August 1941, the British attacked and bombed Iran to secure the Iranian oil wells. They were much more successful than the Italians against Britain and Iran surrendered in less than a week. In the same year, in November, the Japanese attempted the same trick by bombing the United States, their main supplier of oil. The Japanese attack on Pearl Harbor was a tactical success, but a major strategic disaster, as we all know. 

After WWII, the "Carter Doctrine" implied the strategic value of oil producers in the Middle East. One of the outcomes was the protracted bombing of Iraq from 1991, still intermittently ongoing. Other oil suppliers bombed by Western states were Libya and Syria. 

In short, the tradition of bombing one's suppliers of fuels remains alive and well. Whether it can accomplish anything better than the disastrous attempt of Italy in 1941 is debatable, to say the least. After all, it is equivalent to blasting away your neighborhood gas station in order to get the gas you need, but this is the way the human mind seems to work. 

So, on the basis of this historical tradition, let's try to build a narrative about what's going on, right now, with the gas supply to Europe. We just need to translate the roles that some countries had in the 1930s with those of today. 

Coal --> Natural Gas
Italy --> Western Europe (EU)
Britain --> Russia
Germany --> USA

The correspondence is very good: we have a consumer of fossil energy (now Europe, then Italy) which is militarily weak, but threatens the supplier (Now Russia, then Britain) with military action despite the obvious superiority of the latter. The weak consumer (Europe/Italy) feels that it can get away with this suicidal strategy because it has the backup of a powerful ally (Now the USA, then Germany). 

Just like Britain did in 1936 to Italy, Russia appears to have reduced the supply of gas to Europe. In both cases, the result was/is a crisis in the economy of the consumers. Just as it happened in the late 1930s, the stronger ally is coming to the rescue: in 1936, Germany started supplying coal to Italy by rail, now the US is sending cryogenic gas to Europe -- both are expensive methods of transportation, but allow the supplier to access a market that would have been barren, were it not for political reason. But becoming the customers of a militarily powerful country has political costs. 

The correspondence is so good that the current situation could easily develop into a similar outcome as in 1941, with the European Union doing something completely idiotic: attacking Russia, hoping for the support of the powerful US ally. (also, traditionally, attacking Russia is done in Winter: what could go wrong?). 

One conclusion of this story is that humans always tend to worsen whatever major problem they happen to face. Apart from this, perhaps there is an alternative scenario that could lead Europe away from the perspective of nuclear annihilation: maybe we can learn something from the Italian experience. 

In 1936, during the coal embargo imposed by Britain, Italy carried out an attempt to reduce its consumption of fossil fuels that went under the name of "autarchy" (Autarchia). It was based on the renewable technologies available at that time, and it involved some crazy ideas, such as making shoe soles out of cardboard and dresses out of fiberglass. But, on the whole, the idea of relying as much as possible on national and local products made plenty of sense. It didn't work, mainly because the government squandered the Italian resources in useless wars, but, who knows? Today it might work better if we don't make the same mistake. 




(*) The Italian pilots had to fight with obsolete canvas biplanes: much slower than the British Spitfires, poorly armed, without an armored cockpit (the pilots used sandbags as makeshift armor), without sufficient heating, without the right training. And, of course, poor reliability of almost every mechanical system in a cold climate. Most of the Italian losses were due to mechanical failures, while no British planes are reported to have been lost to the Italians. If the definition of "epic" involves fighting against an overwhelming superior enemy, then the experience of the Italian force in the Battle of Britain can surely be defined in this way: an epic disaster. Whoever had this absurd idea deserved to be hanged, and at least one of them was.    

24 comments:

  1. Segnalo che, per una migliore comprensione,
    sarebbe meglio correggere la tabella in:

    Coal --> Natural Gas
    Italy --> Europe
    Britain --> Russia
    Germany --> USA


    (prima --> dopo), senza nulla togliere alla originale chiave di lettura, semplice e geniale, come sempre.

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    1. Giusto! Grazie per la correzione

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    2. Hi Ugo,

      Are we seeing the obvious start of things to come with regards energy prices/depletion.
      Kazakstan now in the news too for removing a price cap.
      Im in Ireland and Ive watched for the past week as 2 tractors with dumper trailers drawing 20 tons each of crushed rock for a farm/dairy cow road. Many trips each a day. 1000s of tons. Im not sure whether its a robot milking system or conventional but when energy prices rise here and it reaches the dairy farmers it is going to make their profits shrink dramatically.(EU milk quotas were removed a few years ago, farms have exploded here, creating monoculture at larger scales)
      Many are predicting a milk bubble that will burst, its hard not to believe it.
      Hopefully some of the farmers come to their senses before that and start growing real food!(most milk ends up as ingredients/foodstuffs for industry/processed foods and export).

      Anywho Thanks again for a good read

      É in Ireland

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  2. Hi Ugo,

    Are we seeing the obvious start of things to come with regards energy prices/depletion.
    Kazakstan now in the news too for removing a price cap.
    Im in Ireland and Ive watched for the past week as 2 tractors with dumper trailers drawing 20 tons each of crushed rock for a farm/dairy cow road. Many trips each a day. 1000s of tons. Im not sure whether its a robot milking system or conventional but when energy prices rise here and it reaches the dairy farmers it is going to make their profits shrink dramatically.(EU milk quotas were removed a few years ago, farms have exploded here, creating monoculture at larger scales)
    Many are predicting a milk bubble that will burst, its hard not to believe it.
    Hopefully some of the farmers come to their senses before that and start growing real food!(most milk ends up as ingredients/foodstuffs for industry/processed foods and export).

    Anywho Thanks again for a good read

    Éanna in Ireland

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    1. Éanna, Ugo,

      I'm in ireland as well, and I agree with your observations - I've watched similar apparently frivolous energy usage in rural and remote parts of Sligo (West of Ireland) with marginal agricultural land (partially water logged, fragmented holdings, remote from main farm buildings). However in the context of diary cows it is worth remembering two things:
      1) retail price of milk is comparable to petrol (gasoline), and that is with swingeing taxation on the fuel (Irish Central Statistics estimates the effective tax rate on petrol is > 200% . This situation is even more acute for diesel, which is a) cheaper and b) taxed at lower rates for farmers (red diesel).So the farmer is swapping a litre of (cheap) fuel, for (expensive) milk. That seems like a good trade.
      2) Even if an individual farmer is thinking about resource depletion, the question is not whether diary farming is economically sustainable in the long term on average across the sector, but rather, can s/he recoup the capital investment soon enough so that annual expenditures are dominated by operational costs not capital costs (i.e. the bank loan is paid off). It's a variation of the tragedy of the commons scenario. Or if you prefer, musical chairs - ultimately no one has a seat, but if it's early enough in the game, the question is not "will I end up with a chair finally?", but instead "will I sit down quickly enough in this round?"

      The relatively low price for fuel compared to milk and the continued investment in farm infrastructure indicates the belief that we're still early in the game, and so the supply problems being experienced is tactical (from the supplier) rather than systemic, which is the point I think Ugo was making.

      Craig

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    2. Hello Craig and É,
      Do you have any numbers on the efficiency of your local dairy farmers? One of my friends milks 35 organic cows, growing all feed himself, with an output of 200,000 l milk on 4,000 l diesel yearly. (EROI approx 4, excluding all purchased machinery).
      The neighbours who use import feed and synthetic fertilizer have higher profits for the time being. But they are much more vulnerable to energy prices.
      A hidden cost/energy loss is the centralized processing of dairy and cool transportation. I think this will be an interesting area for local entrepreneurs with micro-dairy-equipment - instead of transporting milk back and forth, to process and bottle and distribute locally.
      Do you see this as well?
      Goran

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    3. Goran,

      I don't have figures to hand, but I do know that up until about 7 years ago (when the total herd in Ireland dramatically expanded in response to national quotas being abolished) the inputs to dairy and beef farming in Ireland were relatively modest compared to international practice primarily because of abundant availability of pasture. In fact the farmers groups are still arguing this is the case as a basis for a derogation from having to take harsh climate action. However, the subsequent intensification of farming here has almost definitely increased farmers' exposure to energy costs both directly (i.e. fuel costs) and indirectly (embedded energy in eg fertilizer, feed supplements).

      On the question of centralized processing there's two things to note:
      1) in ireland the vast majority (~80%) of dairy produce is exported, so it has to be centrally processed to some degree in any case.
      2) if you set aside transport, the energy embedded in centralized dairy processing is mainly electric (the processes are relatively close to ambient conditions so high grade heat is not necessary e.g. pasturization is 70 C). Ireland already has ~40% electricity from renewables and this will probably come close to the target of 80% by end of decade, so the embedded fossil fuel in food processing is relatively low. Transport of course is another issue, but that's not a farming problem per se, but a whole socio-economic problem, and is related to the question of whether a globalized trade based system is viable without fossil fuel. It may well be the local entrepreneurs will see localized niches open up as economic systems adapt/collapse, but that will still be in the context of reduced overall production.

      Craig

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  3. As Eric Sevareid said, ‘The chief cause of problems is solutions'.

    Two items in this week’s Energy Bulletin caught my attention.

    1) 'Russia may be nearing its oil production capacity limit. Bloomberg reported that the country’s December oil and condensate was flat from November to December, suggesting it used all its available production capacity.'

    2) 'Since the pandemic began, efforts to relocate manufacturing back to the US from abroad have accelerated, said Claudio Knizek . . . “It may have reached a tipping point,” he added. Decades of dependence on Asian factories, especially in China, have been upended by delays and surging freight rates — when shipping capacity can be found at all. In addition, backups at overwhelmed ports and the challenges of obtaining components and finished products in a timely way have convinced companies to think about locating production capacity closer to buyers.'

    In the short term resource/globalization depletion problems may turn out to be more serious than climate change or the pandemic, but they seem to be mostly hidden from view. Time for some Autarchia.

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  4. At that time, nobody could understand how depletion affects production (not even nowadays people do). So most Italians took the reduced coal supply from Britain as a purposeful geopolitical attack.

    Today, it is even prohibited to say the word - depletion, only geopolitical attacks, pandemics, climate change or how great renewable and nuclear energy is - are allowed to be in circulation *


    Here is an example on how the media is allowed talking all sorts of mishmash geopolitics but never a word on depletion - as if Iraqi, Saudi, Iranian, Russian oil and gas, like peaking-British Coal in 1913 for Italians - never deplete.

    Downstream Oil Theft Web Is a highly important document - that stops short of rightly predicting that - from now on, volumes of smuggled fossil fuels worldwide will supersede those 'non-smuggled', reported by mainstream international Energy bodies.

    OPEC will likely turn to OPEM[ilitias], over time.

    Ugo needed to also signify that, likely, Europe will eventually try and cut America from fuel supplies going to it from the ME, Africa and Russia, sparing those fuels to its own continuity.

    Our elders in America will likely strongly agree, understanding that the Energy cost of transporting fuels to America is exceeding the energy in the fuel transported.

    This inspires that the age of undoing Christopher Columbus is imminently in the pipeline - where severely energy-depleting America will lastly gain its freedom back to itself from the brutal, unforgiving, energy-thirsty old Lady - Europe (read/watch Stanford's bright historian Ian Morris' - Why Geography more important than History).

    When most of the voices on the Internet today, tackling finite Energy resources, have obsessively switched to exclusively talk Vaccines and Pandemics, propagating that - Energy is no more than a matter of Pricing - Ugo is providing here a rare, fine quality, brave observation that hasn't been seen exchanged in the whole world for a very long time - Bravo Ugo.

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  5. * This Show, the likely language-dirtiest TV series ever seen by Iraqis, as if produced from the dirtiest brothel in the world - talks wonders;

    It educates war-torn Iraqis that in few years time, their oil will be so unneeded, it will all be left for themselves to fully solely enjoy, burning it in oil lamps at their luxury and convenience - as alternative energy will be dominant.

    It also misleads the viewers that historically, coal replaced biomass, oil replaced coal and natural gas has replaced loads of all those before it - while, actually, nothing has replaced nothing;

    Today, coal didn't replace biomass but added to it, oil didn't replace coal but added to it, and natural gas hardly replaced any of those - "Energy, like time, flows from past to future".

    Actually, nobody knows today for sure how much oil is exported/smuggled from Iraq - is it 4.5 million barrel a day, 6 million b/d or even 11 million b/d.

    The more Iraq exports/smuggles oil, the worse the national power grid in the country performs, if at all.

    The above Show is understood being produced in Europe, orchestrated and financed by mainstream media forces in coal-depleted, energy-starved Germany.

    Germany, the nation that produced the finest of all literature in the world, is now so fossil fuels-humiliated and reduced to produce such a low content.

    Wailing.

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  6. Hello Ugo,

    I love your conclusion that the most peaceful resolution is based on living within limits. Accepting reality and making do.
    I think that the Limitlessness itself is one of the idols of our time, along with Growth and Progress. Maybe a contemporary Trinity?

    Here in the Netherlands, the gas extraction is shrinking rapidly, see e.g. https://www.statista.com/statistics/703597/natural-gas-production-netherlands/
    and since a couple of years the country depends on imports, mainly from Russia.
    Unfortunately, the only official discussion around using fossil gas revolves around climate change mitigation. Never about availability and dependency.
    The same with the oil/benzine/diesel use.

    I think we could make better friends in the Middle East if we did not need Saudi oil. What do you think?

    Peace,
    Göran

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    1. My historic knowledge includes the Dutch use of wind power long before fossil fuels to support an advanced culture. Thats only two hundred years ago. OK no cell phones nor internet, but a hell of a lot of genius that did things without reliance on keyboards and screens.

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  7. Nel '36 l'italia e' stata tenuta in piedi dal carbone tedesco. Fu in tal modo che l'inghilterra, furbamente, ci spinse definitivamente nelle braccia dei tedeschi.

    firmato winston

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    1. I don't think Britain did that on purpose. But it may even be

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    2. Certo che l'inghilterra non lo fece apposta!
      Piuttosto, lo vedrei come un classico esempio di imprevedibilita' della storia, di effetto inatteso di un'azione svolta con tutt'altri obiettivi e intenzioni.
      Altro esempio: il covid, la "guerra" al quale (non il covid in se') non e' da escludere che metta in moto qualche serie di eventi che nessuno scenario precedente aveva previsto come possibili, di tutte le possibili "catastrofi" che avevamo immaginato (e ne avevamo immaginate tante!).

      Fra parentesi, come sarebbe bello se ognuno potesse scrivere nella propria lingua e gli altri capirlo lo stesso (com'era un tempo fra i colti europei - fra i quali io di certo non sono da annoverare!)

      firmato winston

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  8. "but threatens the supplier (Now Russia, then Britain) with military action despite the obvious superiority of the latter."
    that one doesn't work really (Russian GDP is what again ?)

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    1. My impression is that Europe against Russia would not do much better than Italy against Britain. But, of course, you have to fight a war to know who would win it.

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    2. Yves, that all depends on how wisely you spend. I think Russia knows that they have something everyone else wants. Maybe their defense expenditure is part of their pricing strategy for energy exports.

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    3. It appears that a natural experiment is now in progress in the Ukraine situation and it is time to revist this post.
      Putin seems to think the EU has double crossed him (again) since Nord Stream Ii.
      With gas prices and profits at a record high, Germany bought more natural gas from America than from Russia.
      Russia was Europe’s and China’s local gas station and hasn't much else to make money from.
      The rage that Putin is displaying is that of a Godfather who has been double crossed and money that he counted as his is going to an enemy.
      Another post on this please.

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  9. The Netherlands were the first country in Europe to develop on the basis of fossil fuel. Not coal, oil or gas but peat:

    https://www.lowtechmagazine.com/2011/09/peat-and-coal-fossil-fuels-in-pre-industrial-times.html

    Which depleted after 1700, ending the Golden Age of the Netherlands.

    Gavinthornbury

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    1. Amazing story. I didn't know it. Thanks!

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    2. Well, I live at a site where peat was "harvested" in the 1600s and 1700s. It was done because the wood was gone. Peat is a terrible fuel.

      I think this is an often missed historical example where people switch from a better fuel to a lower-quality fuel, since the good stuff is gone.
      Many delusional techno-optimists claim that humanity always move from worse to better fuels, and that the human ingenuity always finds a better-still-alternative.
      Every time I hear this, I think of peat.
      Wet, heavy, and when dried a low, low quality fuel with lots of smoke. Nobody would burn peat if they had wood...

      And as soon as it was possible, the replacement was found in anthracite fossil coal from Limburg and the Ruhr.

      The last century has seen a similar degradation, from burning black coal (higher quality) to brown coal/lignite (lower quality). Ponder that, techno-narcissists out there!

      I return to the suggestion of Ugo, live well within limits. Restrictions infuse creativity.

      Peace,
      Goran

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  10. Thanks for another stimulating input...

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  11. Without fossil fuels and nuclear weapons left over from the Soviet union, Russia is just another small banana republic.
    Unfortunately, those weapons probably still work.
    Soviet era stuff was built to last.

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