Graphs of our changing world.

Interesting Graphs from around the web of a changing world and in particular a changing Britain.

Graph showing utility prices for the last 20 years

Infographic provided by Castle Cover

In this UK gas and electricity price history 2005 marks the point when prices start to climb, inflation is about 5%+ above ordinary inflation and it is expected to get worse meaning household energy bills will double every 7-10 years. But don’t be too hard on the Water Utilities who have been amazingly consistent.

With Electricity going up now is the time to buy solar panels as they have never been so cheap. The halving in price for an average 4kw system in just a few years is unlikely to continue.

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2005 a year that marked the point when North Sea oil production declined to the point the UK needed to import oil again.

File:Exports BP 2009 gas m3 GB MZM NONE auto .png

Unfortunately gas production was also in decline around the same time.

UK debt

Debt appears to have replaced North Sea oil revenue.

http://gailtheactuary.files.wordpress.com/2013/04/egypt-oil-production-and-consumption-v2.png

In comparison to other countries the UK did perhaps, spend the money wisely – Egypt spent a great deal of  its oil wealth subsidising basic food stuffs like wheat and selling fuel for pennies, when the oil declined so did the public compliance with its tyrant.

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Since the peak of growth in the late 80s [and despite the short sharp recession of 91 which was as much to do with growth and over inflated house prices that crashed over night] the trend has been down, slowly to the point we are at zero growth as of 2013.

It is all about oil.

http://gailtheactuary.files.wordpress.com/2011/01/world-food-index-vs-brent-oil-price.png

It’s all about oil even when we are talking the price of bread.

Trends in crime since 1981Thankfully a decline in growth does not equate to more crime and if anything crime has declined at a similar rate to growth. All reported crime which has remained static, tends towards antisocial behaviour increasing with serious offences decreasing. Some crime has diminished because security is better and stealing DVD players and other ‘luxury’ goods are not worth the returns.

Perhaps the end of growth will also be reflected in a reduction in obesity. Does peak oil also equate to peak fat? the UK figures perhaps indicate that obesity rates are in the decline.

Chart showing UK real disposable income

Real disposable income in the UK is declining fast, wages are no longer keeping up with taxes and inflation. Interestingly the spikes and dips correlate with North Sea Oil production, a pattern that one would expect from major oil exporting countries like Saudi Arabia or one of the Gulf states.  It is often assumed the oil importers would be the first to suffer in a post peak oil world but it appears that the producers like the UK [and Egypt as well as many other countries in the same situation] suffer earlier.

A late find: it occurred to me that total oil production was irrelevant as what mattered is oil exports- Saudi could increase production but if its home use is so great exports would decline, and guess what? from this blog.

 

Global oil [in exports ]  has declined a staggering 5%, no wonder we are in recession.

 

 

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The End of Growth: Where Next?

I recently discovered Gail Tverberg’s Our Finite World Blog which explores the longer term issues that face us in a post peak oil and AGW world. Her blogs expertly point out and explain why our current global recession is a direct result of the end of cheap and abundant oil and that the current plateaux of growth and oil production will ultimately turn into a decline.

There has been much debate as to what that decline will be: will it be less than 3% = not too bad, or more = bad; yet if one were to listen to politicians in any country and the economists that advise them then any kind of long term decline is not going to happen. It may seem madness to assume that oil will continue to gush out the ground in ever greater amounts for an ever growing global population in an ever growing world economy but the arguments in favour of this our loud and prominent.

The voice of un-reason goes like this- there is plenty of oil and gas, and we are better at finding it and getting it out of the ground. Even without climate change this logic is flawed. The rational conclusion is that oil [and other fossil fuels] is entirely linked to the last 200 years of population, innovation and economic growth so without the fuel of growth there won’t be any. Where next in a world without growth?

Initially I started writing this blog mentioning how China and Russia have lent the baleouts to us in the West, I commented on how this relationship between China and the West was ultimately doomed. We bought goods with Dollars, Sterling and Euros then went into debt and were lent the money back by China so we could carry on shopping. Quite clearly it is a doomed relationship. But once I got to the topic of financial markets that have invented products to keep the notion of growth going my head started to get confused.

In simple terms what we know as growth and prosperity has been driven by oil so naturally when the oil starts to decline in output so does global growth. The recession we are currently in is nearing 5 years which is a record, and the oil price is at an all time- long term high, yet the oil producers are unable to increase demand despite the continued rise of Brazil, India and China. The optimists will say there is nothing to worry about, there is plenty of oil, in fact trillions of barrels in Canada but the easy oil is gone. The stuff left over, the undiscovered fields in the Arctic and the deep water wells in the Mexican Gulf are expensive, really expensive and not only that these difficult to get reserves don’t have a tap as big as the old oil fields.

Peak oil was never about running out but the bigger picture is the end to the easy growth we have seen over the last fifty to a hundred years. Slow or no growth is a bigger issue than more expensive petrol or electricity, its biggest consequence is the inability of governments to pay back debt. Greece is the current demonstration of what happens when debt cannot be repayed. Even the current Greek crisis is far gentler than the next global crash because Germany is committed to maintaining the Euro and is a lender and as such the Greeks are still being lent money to payback interest on its debt. There is also universal optimism shared by most if not all politicians and economists that things will return to the growth experienced in the past and it is this infectious economic outlook which means that lenders continue to lend. If, however, growth grinds to a halt those debts will not be paid back which in turn means governments will be unable to borrow which means that tax incomes will have to match spending. We won’t be descending into chaos where money is a thing of the past but our currency will be devalued making imported goods and energy even more expensive. Projections of gas prices rises are a doubling over ten years but this is on the international market: if the pound is massively devalued then that gas will cost even more.

The lack of flexibility in government income means that sudden increased unemployment, caused by ever rising fuel costs for instance, will mean increased welfare spending will have to come from other government spending. With such pressures on spending it will be difficult for the UK to maintain such a big military or free libraries or arts grants or free t.v. licenses for pensioners.

Peak oil [indeed peak gas and coal] is not just about energy bills and the amount of driving any one can afford to do it will be about the end of growth. I doubt very much that the wealthiest people or countries will be happy to go down with the rest of the world but the fight for resources is in a world where China, Russia and the developing world and especially amongst the oil producing nations will be impossible. America is one of the few countries with the military might to continue to demand its huge share of global resources but just like Rome 1500 years ago it will not be able to compete with small nations surrounding it. Military conflict consumes even more resources than normal so ultimately a domineering military becomes self defeating.

How can the world’s politicians and economists be so blind to the blindingly obvious? Some countries are not so blind: Germany is investing heavily in renewables and has been in negotiation with German industry to come up with solutions. The main innovation will most probably be the storage of surplus solar and wind energy as hydrogen to either make into natural gas or to power a new technology in transport. It is expensive not only in the cost of investment but also with Germans paying the highest price for electricity in the world. Other nations seem hooked on the illusion of growth and it is ultimately a comforting illusion.

The illusion strongly held by economists is that we will find a way, that we will either find oil in places we haven’t looked and/or develop new technologies to extract it or we will invent a new energy source like fusion. Energy producing countries boast of reserves that will last decades if not centuries, apparently Saudi oil reserves remain the same after 25 of extraction and China’s coal reserves will last 70 or more years. Yet back in the 70s I remember being told UK reserves would last 300 years yet 25 years later recoverable reserves were cut by 99% without fanfare or explanation with the remaining 30 years of production declining at a faster rate.

What the 2008 crisis should warn us of is that nations and companies like to sell an optimistic future: Enron, Royal Bank of Scotland, and Lehman Brothers [a company worth over half a trillion dollars] went bankrupt with people completely unaware of their decline. Just like individuals who are unable to pay back debt there is the human condition that pretends that everything is normal and it is one that dates back to at least the 11th century B.C.E: Ramasis III is considered to be the last great Pharaoh, his monuments are huge, his memorials to his deeds daring but despite the appearance of a golden age the reality was of famine and war and the closing chapter of the Great ancient Egyptian civilisation. The civilisation did of course continue but only a former shadow of its self, no doubt historians in the future will look at Britain as the empire that went into slow decline following the the second World War.

One could argue that Britain [and indeed the USA and Europe excluding Germany] has already entered a new period of no growth and if we were to look to history as to what is in store we would see other countries and civilisations tended to react in a similar way. Disturbingly it is the extremes who end up with the most credible voices, it is those who summon up a cultural golden age where god or national purity ensured wealth and prosperity. It is often the voice of blame that condemn the godless of a distinguishable group in society for the decline. Take your pick: it can be Jews or Gipsies or single mothers or immigrants. Already UKip [or your local right wing political party] is trying to exploit the situation with some success and in Greece the neo-fascist Golden Dawn is having greater success as it proclaims Greece for Greeks.

Japan’s stagnation called the Lost Decade which in fact started in 1990 and was only slowly coming to an end prior to the 2008 Crash, is another example of what a long term state of no growth means to people. The end of growth in Japan meant that career aspiration came to an end: no growth meant no career ladder to climb as old workers stayed in employment rather than retire and without companies expanding the prospects of employees moving into more challenging roles was restricted. Whilst there are millions of people happy in their job despite the lack of change the prospects are worse for young adults leaving education; the problem is not just dead end job prospects but on a wider level business is not exposed to bright, young and latest thinking which is an element of longer term innovation.
Politicians are not going to even think about functioning in a zero growth world economy and the answer to try to avoid problems in the future will be costly and result prematurely in disruption of the economy. Currently government incentives to kick start the economy is to build confidence in long term prospects and encourage people to spend and businesses to invest. Left or Right the ultimate vision is much the same with only the means being contested but encouraging people to buy our way into growth will just bring about change quicker.

I don’t profess to fully understand what a zero growth future means, I am sure it is not going to be some Mad Max post apocalypse and I am certain some countries will do well despite the constraints on global resources. Doomsday scenarios of mass famine, war pestilence and plague may ensue but currently global food production could feed almost twice the population, it is just half of it is fed to animals to provide meat. What is more likely is a society with more division with a greater separation between the wealthy and poor: a dystopia much beloved by British sci-fi writers.

The solution is a new politics although it would have zero public support. Without mineral or energy resources the choice are either low tech and low skilled but globally competitive workforce battling it out with India and China for the last opportunities of growth or a highly educated workforce and society.The first step is make education free- the notion that students should be taking out loans in a world where loans are reliant on future growth is madness. In a post peak world we would be foolish not to grow our own energy, as every energy import needs to be paid with a growing slice of the cake that is not growing. The future is about abandoning energy greedy lives and inventing products that do everything for a lot less. Governments could start now just by ensuring house building is green and future planning is matched to work and services. Now seems a perfect time to rebuild the infrastructure whilst we still have giga tonnes of carbon credits, before nature forces a halt, whilst borrowing is still cheap and whilst we still have a small reserve of oil and gas wealth. To squander our resources on tax breaks and keeping people out of work and education is and will be regrettable.

Iran: the threat

If Hollywood were to draft a blockbusting script with the Iranian nuclear threat as its theme I could imagine two protagonists at its core racing to prevent catastrophe. The American [possibly female] played by one of the new wave of British actors so popular now, would be a lowly intelligence officer, an analyst in something dull like the countries imports, on the opposite side of the world an Iranian [played by a darker skinned British actor] who would also be a middle-ranking civil servant. We will make him a geologist. The back story of each of the protagonists would keep this epic subject human, the American would have most likely had a promising start to their career but had fallen because of a screw up, which was no-doubt, their superiors fault, they also suffer some human but crippling fault like addiction or mental illness. The Iranian is a caring family man, sensitive, genuine but at odds with the religious fundamentalism of his government.

The rest of the story is fairly predictable: intelligence suggests the Iranians are moments away from assembling a nuclear warhead, with Iran and Mahmoud Ahmadinejad [shown in a compilation of news clips] threatening the very existence of Israel. Meanwhile Israel is threatening to bomb the bomb making factory deep in a mountain, but this doesn’t suit American foreign policy as it would jeopardise peace in the Middle-East. Doing nothing and allowing Iran the bomb would mean almost certain holy war of Shiite’s belief in the return of the 12th Iman and a great Islamic Empire which, in turn would force their long term adversary: the Sunni Saudi Arabia, into a devastating global conflict dragging the West into the battle as they desperately try to secure oil supplies. Allowing Israel to attack the nuclear installations would trigger another kind of war and just to give the movie plot an extra twist, a late revelation reveals the bunker busting bombs chosen would be useless against the bomb making reactor deep in the mountain.

As the film reaches its climax and the dilemma between action and inaction is forced into an explosive conclusion it is our protagonists who find the answer. Perhaps the geologist is able to convince his authorities that the reactor [just about to be turned on to make its deadly nuclear bomb material] is on a geological fault line that was just about to slip and cause a local nuclear disaster and must be decommissioned. Or perhaps the plucky Analyst has to convince their superiors that the intelligence is flawed: Iran is years away from assembling a bomb and the US has been deliberately  fed misinformation by double agents bent on achieving war with Israel and the West and the re-establishment of the Mullahs who are losing power as the Arab spring empowers the disgruntled  Iranian people desperate for democracy.  At the last moment the reactor is decommissioned, the planes return home and peace is secured for a few more years.  The last few frames are the beginnings of an uprising as the oppressed Iranian people take to the streets.

However, as glossy blockbusters go it is perhaps a little too predictable, it could be worse, it could end with a team of Navy Seals or SAS abseiling into the underground nuclear installation blowing up the tunnel and sealing the radioactive debris in a mountainous tomb with the blame for the attack placed on the shoulders of an obscure-homegrown-super-fundamental Iranian sect at odds with, what it considers, the liberal mullah rulers. So lets rewind to the beginning and have a gritty plot which is big on dialogue and has a real twist.

The truth is that a daring bombing raid that cripples the nuclear infrastructure of Iran would have to be comprehensive and it would need to be several attacks on installations all over Iran. If it could be achieved it would need the airforce of the US, multiple bombing runs, the biggest ground penetrating bunker buster and would be pretty close to an all out attack. It would most likely empower the current Iranian government who are currently struggling with sanctions and hyper inflation and who could entrench their position claiming that the West is the threat they claim. And ultimately they would double their efforts to obtain nuclear weapons, perhaps buying them from Pakistan or North Korea to prevent future attacks, an attack now would just delay nuclear proliferation. But wait, in Hollywood land couldn’t we have a daring bombing raid where a lone stealth bomber drops a super ‘earthquake bomb’ to cause the underground mountain bunker to bury the threat forever and appear to be a natural disaster? The movie closes with the President in a newscast commiserating with the Iranian government and promising to send aid to the earthquake victims with the hope it may heal Iran-American relations….Perhaps not.

In reality an Israeli or American attack could drag Britain into the conflict, the future of our gas supplies are tied up in Qatar just a few miles across the Gulf from Iran and an easy retaliatory target for the Revolutionary Iranian Guard. The UK has an RAF combat base there.

But perhaps there is a bigger threat, a bigger twist in this plot. Perhaps the Iranian government is telling the truth about its nuclear program and it is purely peaceful and hiding in plain sight is a far more scarier truth.  Perhaps Iran’s sabre rattling and  claims of a peaceful nuclear development which is tinged with hostility to the International Atomic Energy Agency monitoring nuclear proliferation is a double bluff. Saddam Hussein did much the same thing, claiming there were no WMD yet making it impossible to verify just to give the impression that they really had WMD despite it being an empty threat.because he thought Iran was a greater threat than the US.

The biggest twist is that Iran: the second biggest oil producer is actually running out of oil.

A look at historic Iranian oil production  [Iranian Oil Production 2000-2012 link] could show that either the Iranian government is dreadfully inefficient and unable to keep the nationalised oil industry up to date or that production peaked in the mid 00s [noughties] and is quickly dropping off from 4 million barrels a day in 2008 to 3.5 m/bbl today. This kind of reduction is beyond anything manageable on a national and ultimately international level [The Hirch Report [link] reckoned on a 3% annual reduction worldwide would bring chaos].

It is assumed that decreasing Iranian oil production is due to sanctions but these only came into force in the summer of 2012 which is not included in the graph. China and even Japan have leapt on the opportunity to buy Iranian oil with their own currency so Iran is unlikely to have lost customers. Iran, along with the rest of OPEC, has had ever growing reserves, in 1987 reserves increased from 49 to 93 billion barrels and currently the reserves stand at 151 billion barrels [ despite over a billion barrels a year being extracted for the last couple of decades]. OPEC countries do not allow independent assessment of reserves and the advantage of lying allows for member countries to extract a bigger quota, maintain social and economic stability as well as encourage investors to imagine that the country is a safe bet. If Iran suddenly announced that reserves were low, domestic fuel would be rationed to ensure exports, attention would turn to other OPEC reserves, the people would probably riot and overthrow the mullahs and a global economic crisis would ensue. The truth could be far worse than a few nukes in the hands of Iran.

There are plenty of signs that Iran has energy difficulties: the ludicrously cheap and subsidised petrol and energy prices of a few pence per litre are being tackled by government but there is also huge investment in making vehicles run on natural gas. The official view is that Iran has little refining capability and has to import petrol and that it is vulnerable to foreign sanctions or international issues. One may ask why they don’t build capacity considering that it is cheaper than nuclear power stations. Indeed nuclear power would be a sensible option for a country with good uranium reserves, and a population whose power consumption is closer to high users like the U.S.

The Iranian government has a track record of mismanagement but whilst the prospect of Peak Oil still means that the country may well be extracting oil for another 50 years [rather than the projected 100 years] it still has to keep the illusion that everything is fine. They need to make a transition that means their domestic energy needs are met with a mix of supply [that even includes windturbines] and they are able export oil to pay for it, yet continue the pretence and the denial of developing nuclear weapons becomes the double..er..double, double bluff.

The protagonists of our movie are forced to make a decision, to speak or stay quiet. In the real world you could take the proof to major newspapers even Fox News and despite being news worthy there are plenty of people who just don’t want to hear it. The closing scenes of this movie is a right-wing commentator on Fox News proclaiming it to be a eco-nazis plot, a hoax by tree-hugging pinkos and enviro-fascists trying to prevent Americans their right to drive their car.

Energy Futures part 2

The future is yet to be written, we could move from our current fossil fuel driven, technology era to a sustainable technological era or suffer climate change and fossil fuel depletion in a very uncertain future. Exactly how bad the future of our lives, that of our children’s and our grandchildren is unknown, the discharge of CO2 through human activity will not in itself cause huge climate disruption, what is at issue is the feedbacks of the climate. Computer modelling, applied physics and observation can only do so much in the testing of climate change theory, they are not crystal balls but tools. And that is very much the theme of this post.

When I first became interested in the environment way back in the 1970s the issue was one of pollution and the loss of species, despite the knowledge that CO2 could change the climate as early as the 1950s it only became an issue in the early 1990s, but what if CO2 was not a problem, where would we be today?

Peak Oil, that is, the point in history when demand starts outstripping supply as well as the discovery of replacement wells is an issue now. [ the Wikipedia entry covers the issue extensively] Predictions for when it will occur range from any time between 1999 and 2040. The United States Government felt compelled to do a study of the consequences in its Hirsch Report in 2005  which concluded that oil would start to decline around 2015. Oil companies such as Shell are dismissive of Peak Oil believing that the industry will carry on supplying well into the future and when unconventional oil is taken account, that is very heavy crude and tar sands which make up over half of known reserves, we have plenty to burn as pointed out in these articles, here and here. Others however mistrust the fossil fuel industry [see here] [and here] with industry experts being at the forefront of the criticism, the author of the US Peak Oil report was a former high ranking employee of Exxon.

When the banks collapsed it took governments by surprise, well at least they pretended ignorance despite warnings from whistle-blowers in banking. Governments were assured by the finance industry that everything was above board and it was yet another way they were creating wealth. In hindsight it is all perfectly clear, the banks created a system the was inherently flawed and easily abused, and one some would consider fraudulent.  Why then, should we, our government and anyone effected by the 2007 credit crisis trust any industry? Is being burnt by the banks an exception or would it be wise to be sceptical of the energy industry?

Enron was, back 2000, an energy giant with a turnover of $100 billion and a value of over £60 billion, a year later it was bankrupt as a complex fraud was revealed. Board members and key personnel were unaware of the fraud, the clever book keeping and the amount of liabilities. Unconventional shale gas [aka fracking] may also be an elaborate business model bordering on a Ponzi scheme, or at the very least a gold rush. At the moment the dash for shale gas is big in the US, it is very competitive and the price is now low, at the same time insiders indicate some ‘seams’ are lot less productive than first thought but as drilling rights are highly prized some companies are appearing to be in good profit by selling off their rights to late comers. At the moment it is a gold rush with plenty of investors but if production quickly peaks then there will be more losers than winners and ultimately the gas price will climb. This video covers the issue in more detail. You may ask, why don’t people such as investors do a little research? Clearly on past performance whether it be the 1930s Wall Street crash, 2007 credit crunch, the dot com bubble or the recent sale of Facebook which lost half its value in just 3 months, investors operate in a very optimistic environment.

Sceptics/deniers of Climate Change are quick to mention the wonders of thorium nuclear reactors [which have failed to work commercially for 50 years] and shale gas, they want to believe both technologies will provide cheap abundant energy. The desire, particularly in the US to return to the good old days of cheap fuel is such that a new conspiracy theory is forming that it is only evil [tree huggers] [the government] [bankers] [Arab revolutionaries] (tick box) are keeping the prices high. But before we laugh at their naivety look around, do you see many people getting concerned that the beginning of the end of the oil era may be upon us in 2 years time?

About 3,170 years ago Ramsis III built great temples, many statues, a great tomb and additions to the great temples that superseded that of many of his forebears. His inscriptions and relief carvings show a great Pharaoh ruling over a great land, the truth was very different to the impression. Documents were to eventually turn up that tell of a different story: his most important staff, his tomb workers went on strike because of lack of food, his great battles with invading armies were undecided and his queen organised a military coup against him. Egypt was suffering drought and it was part of a 20 year climate change event that reshaped every civilisation. Ramsis III is considered the last great pharaoh and Egypt quickly fell into decline after his death. He held it together and gave the impression nothing had really changed.

The oil [and gas] industry want to give the impression there is no need to worry, and we want to believe them. We won’t be thrown into some Mad Max world where gangs of bikers scavenge the last of the petrol, but fuel will continue to be more expensive until a point when countries start warring, economically and perhaps violently to get their share of a diminishing resource. Both China and the US need to keep their peoples happy with the consumer dream, for China consumerism has been the treat to keep its people from revolution, the moment it fails to deliver is the moment the people will hit the streets. If a billion new car owners is what it takes I am sure China will do everything in its power to enable that [it plans for just 20 million electric cars by 2020].

So if you are an investor, say, with a few £billion for pensions in 20 years time where will you put your money. Even the oil companies admit that the cheap easy oil will be severely diminished in 22 years. If climate disruption continues to increase in frequency we can expect more years like this year where the US and Europe have lost 20% or more in food production. If governments do decide to act belatedly and cap CO2 emissions and therefore the fossil fuel industry where are you going to put that money, now?

BP’s 2011 profit was $24 billion, with assets of $280 billion, as long as it stops its rigs or refineries blowing up it is a safe investment, but those assets are future oil, oil in the ground which may have to be left there or may be grossly over-estimated. As an investor you don’t know and if times are good now what is going to be the signal that the black gold oil rush is over? As oil companies seek new reserves they are drilling into deeper waters, operating in unstable countries, spending more money looking for smaller and smaller reserves and those healthy dividends will start to look smaller and smaller. You don’t even need peak oil to get nervous: Saudi Arabia is one of the most oppressive societies on earth, it is also secretive, if a country like Tunisia can erupt in revolution so can SA, and there the Wahabi Islamists,  who are likely to prevail, are not friendly to the West.  A few months, a few weeks without their oil would throw the markets into chaos. [If in the first Gulf War we hadn’t joined in the Kuwaitis would have have sold $billions of assets to raise a mercenary army and cause chaos to the global economy in the process.]

We won’t know when peak oil has occurred until after the event so does it not make sense for investors to plan ahead now? The alternatives to the $6 trillion energy market as well as current transport are clear. It is alternative energy, it is electrification of railways and eventually private transport, it is local business, local shops, and local housing rather than out of town suburbs, shopping malls and long commutes. It is thousands of opportunities to be there first and make a profit in the process. Even Richard Branson and Virgin airlines is investing in a non fossil fuel, non bio fuel alternative ‘for when oil runs out‘.

I doubt many investors will read this blog but to make that change and for humanity to avoid that environmental disaster we need to do something. May be it is -the economy stupid- we are perhaps, wasting our breath on the denial-sphere, on politicians with a five year agenda, instead we need to focus on those with a long term vision, we need to get the market to think straight and really hedge its bets.

Energy Futures

Oil: future historians will no doubt look back at our short 150/200 year era as the one of oil. This human era will sit neatly between the Industrial Revolution of coal and steam and a new period that we will ultimately decide. The future is unwritten but there are interested parties not least the oil industry who actively write their version.
I don’t want to join the ranks of conspiracy theorists [albeit mild one] who blame all wars on oil but ‘its all about oil’ is a truism. Sure the Iraq war would have unlikely to have happened had it not been for the first one with the invasion of Kuwait, triggered by a supposed oil dispute, and invasion of North Korea with its WMDs [and no oil] is highly unlikely but the real issue is our economy: it is driven by oil and gas. Our love affair for the motor car is such that newspapers eagerly report almost every discovery of a new oil field, reassurance that our lifestyle is not under threat. Only the dark existential threat of Climate Change hovers over the optimism that the wheels will continue to turn and our futures will remain unchanging.

There are facts that are disturbing: there is around 1,200 billion barrels of oil in known reserves, if they are burnt [along with known gas & coal reserves] it  will produce 2,800 gigatons of CO2. The most optimistic view of mitigating climate change is stopping at a 2c increase in temperature by 2050 which means we get to produce 570 gigatons of CO2, so you can see the problem, there are 5 times more reserves than wriggle room. But reserves of fossil fuels is a lot less straight forward than the fossil industry would have you believe.

Saudi Arabia with the worlds largest reserve of crude oil had 261 billion barrels of crude in 1992 yet 18 years later had 264 Bb, this, despite extracting 60 billion barrels and not discovering any new fields in the same period. The same increases in estimates occurred throughout known oil fields. Another figure of interest is the amount of extra heavy and tar sands reserves in the global reserves which is 55% these are mainly in Venezuela and Canada. Canada has the 3rd largest reserves with Saudi 2nd and Venezuela in top position but Canadian oil is in a heavy form, it is oil sands which are close to the surface and are scooped up and processed. Oil wells do not tap down into great lakes of oil they are locked into porous rock with a capping strata of dense rock above. Drill through the capping over-lying rocks and the immense weight of [ 2 Km  in the N.Sea] of rock above the oil bearing strata forces the oil out, the same is for gas. Conventional crude was an easy resource, it comes out of the ground under its own steam and with a 10% input of energy it is quickly converted into useful and cheap fuels, extra heavy and tar sands require a lot more energy to extract fuels. Canadian tar sands require 1 barrel of oil to process 3 barrels so in energy terms there is a quarter less reserves than reported. The other issue is the difference between what is a proven reserve and how much can be actually extracted which is nearer half,  the Forties  field in the North Sea reserves were proven at 5 billion barrels on discovery but less than 2 billion could ever be extracted.

Current global consumption  is around 90 million barrels per day, to put that in perceptive one of the most recent discoveries: the Peregrino South oil field off the coast of Brazil is between 150-300 million barrels  that’s just 2 or 3 days of demand. The Wikileaks documents revealed that countries may actual lie about reserves, Saudi production is huge but despite promising for a decade to supply 12 million barrels per day to help control prices that figure has not been met because there is not the oil. It is guessed that reserves may be between 40 & 50% less.

There are two ways to look at the problem, and either way it is a problem: there is plenty of oil for the next century but in burning it we will raise temperatures above 2c into the extremes of 4c and more meaning certain dangerous change for our grandchildren. How bad? Well it seems many scientists are more pessimistic than the consensual opinion. The other possibility is that there is a lot less oil. Oil reserves link into the whole financial market, as an instance BP is valued on potential production, when its shares are traded [and whose dividends pay pensions] the share is in future oil production- or rather extraction. Big up the companies reserves of oil and you big up the value of the shares. A recent example is UK shale gas reserves: Cuadrilla announced that it found a potential 200 trillion cubic feet of gas, this was, of course hype, as reserves and recoverable reserves in this case can be as little as 10-20% but the British Geological  Society was a lot more reserved with a figure of 5 trillion cu/feet [150 billion cu/m]. The UK annual consumption is 100 billion cu/metres of gas which means fracking would provide 18 months of consumption.

The global energy market is estimated to be $6 trillion, so with the World economy being $60 trillion 10% of our production/consumption is energy. Most of that energy, which drives the power stations, the factories, the farms and our homes is derived from fossil fuels. Getting the value of the fossil fuel market as a percentage of the Global economy is difficult and I don’t know how realistic $6 tr is, a quick look at oil consumption = 32 billion barrels and its price at $100 per barrel gives $3.2 trillion and that is just wholesale oil, once processed the barrel [158 litres] of crude gives up valuable raw materials for the chemical and plastics industry as well as fuel  . Some of that energy market is non fossil fuels, [burning wood being the main energy source in developing countries] but nonetheless our economy is dependant on fossil fuels and the markets use the ‘potential’ value of energy companies as secure investment. Not only is our lifestyle dependant on fossil fuels but also our livelihoods and future economic growth.

If the World’s governments were to take Climate Change seriously and committed to a 2c stabilisation this would restrict us to burn only 20% of fossil fuel reserves and would mean oil, gas and coal companies would lose 4/5ths of their value. The oil companies may be selling an elaborate Ponzi scheme and have significantly smaller reserves which may become apparent when demand from China and India out strips supply but that would be gradual, a Global declaration to avert climate disaster would happen overnight. It would strip value off the markets, trillions would be lost over night, and the global economy would be in crisis. The financial crisis was caused by the banks lying about their value of their assets, their Ponzi scheme of toxic mortgages simply valued property at a higher rate with people unlikely to pay it back. It cost the US economy $12 trillion but that excluded the $23 trillion in Quantitative Easing and bank bail outs, the $2.6 trillion in lost GDP and $trillions in share losses and unemployment.

The markets are not renowned for their foresight and it seems unlikely they are going to switch their investments from fossil fuels to green economies. The solutions are there, and the technology is proven. Even the costs are not an issue: the 1973 oil crisis, when prices quadrupled, made the North Sea Oil fields commercially viable with companies like BP investing and developing technologies that far outstripped the cost of Nasa putting a man on the Moon. Canada’s oil fields of tar sands are only viable because oil prices are so high and it is trend that can only go in one direction.

Investing in green energy on a huge scale is the only safe option given the alternatives are either ecological catastrophe or economic calamity, but with the markets dependency on fossil fuels the only alternative of funding rests with the individual and more importantly government.