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."
Showing posts with label tight oil. Show all posts
Showing posts with label tight oil. Show all posts

Sunday, February 12, 2023

The Empire Strikes Back: Down with those Silly Environmental Policies!




I defined this image as "The most amazing graph of the 21st century," and I argued that the rapid inversion of the declining trend of crude oil production is the cause of the US government's currently aggressive foreign policy. But the vagaries of oil production in the US haven't ceased to amaze us. We are now seeing a desperate attempt to keep oil production growing, even at the cost of dumping everything done so far in terms of "green" policies to mitigate climate change and ecosystem disruption. It is a major historical change. 


Sometimes, things change so fast in our world that we are left bewildered at seeing the rapid disappearance of the world we had thought was normal. The Covid pandemic was a case in point. It changed our habits, how we see ourselves and others, and affected our fundamental rights. In less than a couple of years, it propelled us into a "new normal" that became the way things are and have to be. 

The wave of rapid changes is not over. Now, change is sweeping through energy and environmental policies, and not in a good direction. A recent article in "The Epoch Times" reports about a document approved by the House Natural Resources Committee with the title, "GOP-Led House Panels Shift Gears, Go Full Throttle for Domestic Energy Production." It is a true tsunami poised to propel us into another kind of "new normal." Here are some excerpts.

"Republicans made it clear that many initiatives passed under the Biden administration promoting electric vehicles, carbon capture, green energy, and environmental protection are on the proverbial chopping block.

"Among the proposals that will dominate the committee’s and its subsidiary panels’ agendas in the coming months are bills prohibiting restrictions on hydraulic fracking without congressional approval, expanding natural gas exports, repealing the IRA’s Green House Reduction Fund, and amending the Clean Air, Toxic Substances Control, Solid Waste Disposal, and National Gas Tax acts.

"Within the tranche of proposed legislation on the committee’s “unleashing American energy agenda” are bills calling for permitting reform, promoting development of “critical minerals,” and prohibiting the import of Russian uranium. 

"Current energy policies not only degrade the economy but imperil national security... We are exporting wealth from here in the United States, many times to our adversaries, because of a not-in-my-backyard mentality,

"Grijalva’s proposed amendment to incorporate a statement that the impacts of climate change be weighed in evaluating proposals was defeated on a 21–15 party-line tally."

And more like that.

Let's try to unravel this set of ideas. We can start with the key sentence: "prohibiting restrictions on hydraulic fracking." It means that the Republicans want to ramp up the production of natural gas and crude oil at all costs, and the hell with "Climate Change" and "environmental protection." These silly ideas came from those scientists who think they deserve a salary just because they spend their time scaring the public with invented catastrophes that never arrive. Who do they think they are? 

The Republicans seem to be riding a wave of public opinion that sees environmental policies in a bad light. Indeed, most people were never enthusiastic about making sacrifices for a nebulous entity called "the environment." But, today, the public's trust in science has taken a considerable beating from the Covid crisis, and it is becoming more and more difficult to convince people to act in the name of a "science" that they see with increasing suspicion. Independently of individual opinions, when things get tough, most people tend to agree that there is no space for niceties and luxuries, as environmental policies are usually perceived. 

Apart from dumping regulations, neither the Republicans nor the general public seem to be able to see the glaring contradiction in what they are planning to do. Increasing oil and gas production means that more oil and gas will be used and exported. But once oil is produced and burned, it is gone. Then, the country will be impoverished, having lost some of its natural resources. (Unless, of course, you think that oil and gas are an infinite resource.... and that's precisely what the US elites think.). This is a classic case of hastening one's own doom, but it is normal. It happens all the time. 

Besides, there is an even more worrisome point in these ideas. Can fracking production be actually increased? The sentence about prohibiting restrictions on hydraulic fracking actually smacks of desperation. During the past 10 years, an incredibly rapid increase in oil production was obtained without the need for such a radical legislation. So why is it needed now? It may be a way for senators to show their determination, but it is more likely that the fracking industry is in trouble, unable to recover after the drop caused by the Covid pandemic. 

Let's see some recent data from "Peak Oil Barrel." 


You see that the US oil production collapsed in 2020 due to the Covid epidemic. Then, it restarted growing but has yet to return to the record level of Nov 2019. During the years of fast growth, up to 2019, it had grown more than 1 million barrels per year, a nearly 10% increase. It was a rate never seen during the whole history of US oil production. But, during the current recovery, it has declined to about half that value. The forecasts see a further reduction to nearly zero growth so that the 2019 record may not be breached before December 2024 -- if ever. Note also how production went down for about 6 months before the Covid shock. Something was rotten in Texas already by then. 

What's happening? One thing is clear: the US oil industry can no longer sustain the incredible growth rate that had been the rule up to 2019. We may well be close to the second (and final) peak of oil production in the US (as also noted by others)

So, as in the old Chinese malediction, we live in interesting times. An empire that does not expand is a dead empire, and the American Empire needs energy to keep its expansion going. A war, after all, is just a continuation of the economy by other means: the market is the battlefield, and "programmed obsolescence" is assured by the competitor's products. During the past decade, the US empire has accumulated considerable economic potential through the "fracking miracle." This potential has been turned in large part into a military potential. It is now time to dissipate this potential; it is the primary reason for what we see in the world nowadays. It is a concept explored in depth by Ingo Piepers.

The American elites understand what's happening. Hence, the effort to prop up the oil industry at all costs. So, will the Empire succeed in surviving for some more years? The current war is not being fought on the battlefield but on the oil fields. The side that runs out of fuel first will be the loser. 

In the long run, anyway, the winner will also lose: at some moment, production by fracking will not just decline: it will crash in one of the most brutal Seneca Cliffs ever witnessed by humankind. But do not despair: humankind has been thriving before the age of oil, and it may well do the same afterward. It will just be a very different world for those who will survive to see it. 


Below is a post I published in 2015, where I compared the growth of shale oil production to that of cod fishing in the Atlantic. In both cases, producers were blinded by a false sensation of abundance generated by production growth. They didn't realize that the faster you extract it, the faster you run out of it. 


The shale oil "miracle": how growth may falsely signal abundance. 

Originally published on "Cassandra's Legacy,  February 24, 2015




Oil production (all liquids in barrels per day) in the US and Canada. (From Ron Patterson's blog). Does this rapid growth indicate that the resources are abundant and that all the worries about peak oil are misplaced? Maybe not...


Sometimes, we use a simple metric to evaluate complex systems. For instance, a war is a complex affair where millions of people fight and struggle. However, in the end, the final result is a yes/no question: either you win or you lose. Not for nothing, General McArthur said once that "there is no substitute for victory."

Think of the economy: it is an immense and complex system where millions of people work, produce, buy, sell, and make or lose money. IEventually the final result is a simple yes/no question: either you grow, or you don't. And what McArthur said about war can be applied to the economy: "there is no substitute for growth."

But complex systems have ways of behaving, surprising you that can't be reduced to a simple yes/no judgment. Both victory and growth may create more problems than they solve. Victory may falsely signal a military might that doesn't exist (think of the outcome of some recent wars....), while growth may signal an abundance that is just not there.

Look at the figure at the beginning of this post (from Ron Patterson's blog). It shows the oil production (barrels/day) in the US and Canada. The data are in thousand barrels per day for "crude oil + condensate," and the rapid growth for the past few years is primarily due to tight oil (also known as "shale oil") and oil from tar sands. If you follow the debate in this field, you know that this growth trend has been hailed as a great result and as the definitive demonstration that all worries about oil depletion and peak oil were misplaced.

Fine. But let me show you another graph, the US landings of North Atlantic Cod up to 1980 (data from Faostat).

Doesn't it look similar to the data for oil in the US/Canada? We can imagine what was being said at the time; "new fishing technologies dispel all worries about overfishing" and things like that. It is what was said, indeed (see Hamilton et al. (2003)).

Now, look at the cod landings data up to 2012 and see what happened after the great burst of growth.

This doesn't require more than a couple of comments. The first is to note how overexploitation leads to collapse: people don't realize that by pushing for growth at all costs, they are destroying the very resource that creates growth. This can happen with fisheries just as with oil fields. But, also note that we have another case of a "Seneca Cliff," a production curve where the decline is much faster than growth. As the ancient Roman philosopher said, "The road to ruin is rapid." And this is exactly what we could expect to happen with tight oil.

Sunday, December 4, 2022

What is the Next Thing that Will hit us? Brace for it, Because it may be Huge

 

Despite having ancient seers (the "haruspices") as ancestors, I don't claim to be able to predict the future. But I think I can propose scenarios for the future. So, what could be the next big thing that will hit us? I suggest it will be the disruption of the oil market caused by the recent measure of a price cap on  Russian oil.


Do you remember how many things changed during the past 2-3 years, and changed so unbelievably fast? There was a pattern in these changes: one element was that we were told they were just temporary, another was that they were done for our sake. We were told that we needed "Two weeks to flatten the curve," and that "the sanctions will cause the Russian economy to collapse in two weeks," and many more things. Then, our problems will be solved and the world will return to normal. But that didn't happen. Instead, the result was a "new normal," not at all like the old one. 

Now, the obvious question is "what next?" More exactly, "what are they going to hit us with, next time?" There is this idea that there may be a new pandemic, a new virus, or the old one returning. But, no. They are smarter than that -- so far they have always been one step, maybe two, ahead of us. They are masters of propaganda, they know that propaganda is all based on memes and that memes have a finite lifetime. Old memes are like old newspapers, they are not interesting anymore. A particular bugaboo can't scare people for too long, and the idea of scaring us with a pandemic virus is past its usefulness stage. They may have probed us with the "monkeypox" pandemic, and they saw that it didn't work. It was obvious anyway. So, now what?

Let me suggest one possible new way to hit us. You may have heard of it but, so far, it was supposed to be something marginal, not designed to create another "new normal." But it may. It is huge, it is gigantic, it is arriving. It is the price cap on Russian oil. The idea is that a cartel of countries, mainly Western ones, will agree on prohibiting the import of Russian oil unless it is priced at less than $60 per barrel. It will also make it more difficult for Russia to export oil abroad, even to countries that do not subscribe to the agreement. 

This idea is, as usual, promoted as a way to help us. Not only it will harm the evil Putin, but it will reduce oil prices, so everyone in the West should be happy. But will it actually work? Unlikely, to say the least, and it is probable that the promoters know that very well. 

Think about that: it never happened during the past hundred years that a cartel of countries had intervened to force a certain oil price worldwide. Even during the "Oil Crisis" of the 1970s, the Organization of Petroleum Exporting Countries (OPEC) never did what it is often accused of having done, fixing a high oil price. OPEC can only set production quotas or sanction certain countries, but it has no power, and never had power, on prices, which are set by the international market. 

When governments meddle with prices, the results are always bad. Typically, prices of goods are set too low, and that has two effects: the rising of a black market and the disappearance of the goods from the official market. It was a typical feature of the Soviet economy, where prices were often set at low levels to give the impression that certain goods were affordable to everyone. But it wasn't so: theoretically, most Soviet citizens could afford caviar sold at government-established prices. In practice, this caviar almost never existed in shops. But, of course, it was possible to find it in the black market if one could pay exorbitant prices for it.

Today, intervening to set a price for Russian oil is equivalent to throwing a wrench into the gears of a huge machine. Nobody knows exactly how the global oil market is going to react. The only sure thing is that the Russians are refusing to sell their oil to countries subscribing to the agreement. The overall result of having removed a major producer from the market can only be one: increasing oil prices. Exactly the opposite of what the price cap is supposed to do. But this is the very minimum that can happen: the effects of the cap are unpredictable on a market that's already unstable and subject to wild price oscillations. Europe might lose access to oil completely, and go dark. Famines have been a staple event in European history, they could come again. Things like that -- not small changes, huge changes. 

Why did the Western countries engage in this apparently counterproductive idea? Well, there may be some method in this madness. I can think of a few possible explanations: 

1. Western Governments are in the hands of idiots who act according to the principle known as "I ran naked into a cactus. Why? Because it looked like a good idea." They put into practice ideas that look good ("harming Putin"), without worrying about the consequences (destroying the European economy). 

2. The price cap has the specific purpose of raising oil prices. It will force consumer countries to switch from the relatively cheap Russian oil to the more expensive American oil, which will become even more expensive in a near-monopoly regime. This will bring huge profits to American producers. Don't forget that the American elites are convinced that the US oil resources are infinite, or nearly so. 

3. The price cap is thought of as a way to save the US tight oil industry. So far, tight oil has been almost a miracle, bringing back the US to a position of dominance among oil producers. But it is now facing difficulties with oil prices declining in the world market. With higher oil prices, Europe will finance a new round of tight oil extraction in the US, while the profits will remain in the US. It sounds diabolical, and maybe it is. Let me add that there may be a reason why the tight oil industry was recently declared "dead" in the mainstream media. Call me a conspiracy theorist, but this article on "Oilprice.com" may have had the purpose of scaring the US producers and making them accept the risky measure of forbidding Russian oil from entering the Western market. 

4. There may exist a "hidden force," somewhere, that's acting with a plan at the global level. The plan involves a forced reduction of fossil fuel production and consumption to mitigate the damage generated by global warming or, perhaps more likely, to leave energy for the elites while taking it away from commoners. The recent events, the Covid crisis, and the Russian crisis, both have the effect of impoverishing some of the major consumers of fossil fuels, Western middle-class citizens, and so reducing overall consumption. The price cap on Russian oil may be just the first step of a new plan that will force Westerners to abandon for good their addiction to fossil fuels, whether they like it or not. This may not be a bad idea for several reason, but it is a kind of global medicine equivalent to lobotomy or radical mastectomy for single humans. Let's say, a bit heavy-handed. 

It may be that all four of these factors are at work. In any case, it is a powerful convergence of interests that is materializing, likely to be successful in pushing the cap on Russian oil to worldwide acceptance. Considering how easily European citizens have been led to believe the most absurd things during the past two years, it is unlikely that they will understand what's being done to them (and let me not use the appropriate words for the concept). Not that the American citizens will fare much better: the huge transfer of wealth from Europe to the US will go all into the pockets of the American oligarchs. As for the European governments, they are the structures that should oppose this giant wealth transfer, but they are staffed by traitors, idiots, or both; so they will enthusiastically adhere to the idea. 

Is this what the crystal ball shows? Not necessarily. Let's just say that there are reasons to think that what I just described is a likely scenario. Then, the best-laid schemes of mice and men gang aft agley. There is a limit to how hard you can push something before it goes to pieces or bites you back. Will European citizens continue forever to be happy to be economically raped by the US? The future is always full of surprises, but the crystal ball always shows the same thing: the world goes where the money is.