Telling the Truth About Our Future

Renewable energy is a poor substitute for fossil fuels. That’s because renewables are a diffuse form of energy and produce power only about one-third of the time. That doesn’t stop renewable energy true-believers from trying to bend the laws of physics to tell a story that’s not true. EROI** (energy returned on energy invested) was…

The Energy Transition is Being Led by a Clown Car

Renewable energy capacity is expected to expand dramatically in the next few decades in order to get climate change under control. Because wind and solar are intermittent sources of electric power, there needs to be a sound plan for energy storage or backup. From what I can tell, there is not. The EIA (Energy Information…

Renewables Are Not the Cheapest Form of Power

The CEO of TotalEnergies believes that the renewable transition will lead to higher—not lower—energy prices. That’s a very different view from the popular belief that renewable energy prices are falling so fast that electric power will become ever-cheaper. “We think that fundamentally this energy transition will mean a higher price of energy. “I know that…

The LNG Export Pause is Irrelevant

Industry and gas-producing states are furious about the Biden Administration’s announcement to temporarily pause new approvals on pending Liquefied Natural Gas (LNG) exports. “Instead of addressing America’s real energy challenges, your administration has decided to double down on a reckless environmental agenda through this TikTok-inspired ‘pause’…This surprise freeze is (1) unlawful, (2) harmful to our…

Betting the World on an Imaginary Energy Future

Government leaders tell us that the world is moving toward a renewable energy future. At the recent COP 28 climate meeting in the United Arab Emirates, those leaders agreed to a transition away from fossil fuels to net-zero carbon emissions by 2050. COP 28 was the thirty-sixth international climate conference at which some version of…

Aramco Development Halt Has Nothing to Do With Oil Demand

Saudi Aramco is abandoning plans made in 2020 to increase field production from 12 to 13 million barrels per day. The announcement has provoked analyst comments that the decision is because of weaker oil demand. “Demand growth is till continuing but it’s a little bit slower. In the short-term, we don’t need 13 million barrels…

Bakken Break-Even Prices Threaten Profits

The Bakken Shale play is following the same pattern of declining well performance that I have shown for the Permian and Eagle Ford in recent weeks. Bakken break-even prices have risen almost 70% as a result. If this pattern continues, it threatens the play’s future commercial viability. Bakken EUR (estimated ultimate recovery) has fallen almost…

Draining America First—The Beginning of the End for Shale Gas

The United States is the biggest producer of natural gas in the world and recently became the largest exporter of LNG. The industry is scrambling to build LNG (liquefied natural gas) export terminals as fast as permitting and funding will allow. This couldn’t come at a worse time. Instead of having an almost infinite amount…

A Renewable Energy Future Will Collapse the Financial System

Energy is the economy. That’s a radical concept because most people think that the economy runs on money. It doesn’t. What is energy? It is the potential or capacity to do work. The economy runs on work. That’s why energy is the economy. That’s simple. What is money? That’s a little more complex. “Money is…

Eagle Ford Shale–A Preview of Permian Decline

The Eagle Ford Shale was the hottest play in the United States a little more than a decade ago. In mid-2012, there were twice as many rigs drilling horizontal wells in the Eagle Ford as there were in the Permian basin. Now its decline is probably a preview of what to expect from the Permian…

Can We Just Get Over Nuclear?

Why do so many otherwise intelligent people believe that nuclear power is the solution to the world’s energy and climate crises? “There is no way, absolutely none, that the world’s energy transition away from fossil fuels can be achieved without a massive increase globally of nuclear power.” —Suriya Jayanti, Time Magazine (December 2023) It’s just…

Climate change is a Narrow View of the Human Predicament

A transition away from fossil fuels seems like a sensible approach to climate change but what are the correct ingredients? Wind, solar, hydrogen, electric vehicles, carbon capture, nuclear, geothermal, heat pumps, hydropower? It’s like a doctor treating a patient without examining the source of his symptoms. “If many remedies are prescribed for an illness, you…

Doomberg Embarrasses Himself

Doomberg’s recent views about oil on Thoughtful Money were painfully amateurish and often just wrong. I have always respected Doomberg even when I disagreed with him but I was embarrassed for him in this podcast discussion with my friend Adam Taggart. Doomberg thinks that he has made some big discovery—that oil should include natural gas…

Doomberg Goes Off the Rails

The ordinarily knowledgeable and reasonable Doomberg is way out of his lane on oil. In a recent post “Peak Cheap Oil is a Myth,” Doomberg observes that natural gas liquids have been ignored as a part of what the world considers oil. If they were included, he argues, then it would be evident that there…

Comparative Inventory Tells Recent Oil Price Story

Analysts propose all kinds of explanations for why oil prices have fallen since late September. They are all somewhat true but the real reason is that comparative inventory (C.I.) has increased. Crude plus refined products C.I. rose almost 2.5 million barrels (mmb) for the week ending January 5 (Figure 1). C.I. has increased +34 mmb…

Coal Magical Thinking from the IEA

Coal demand will peak in 2023 and begin to decline in 2024 and beyond (Figure 1). That’s the good news in a report by the International Energy Agency (IEA) issued in December. Coal is important because coal accounted for about 44% of man-made carbon dioxide (CO2) emissions in 2022. If the IEA’s forecast is right…

EVs Will Have No Effect on Oil Demand

It seems reasonable that oil demand will fall as the number of electric vehicles (EV) increases. Unfortunately, there is no support for that popular belief. In fact, the data suggests that EVs will have close to zero effect on oil demand even in the longer term. Estimates for the amount of oil demand already affected…

Why I’m Not an Oil Bear

It’s easy to be an oil bear these days. WTI has fallen almost $20 per barrel since mid-September and OPEC+ seems to have lost its ability to do much about lower prices. Many of the classic indicators are flashing red. WTI futures price is at its 200-week exponential average and that threshold signaled periods of…

Beginning of the End for the Permian

Permian basin and Eagle Ford oil recoveries have both fallen by 30% and Bakken has declined by almost 20%. Those plays accounted for two-thirds of U.S. output in 2023. That means that U.S. production will decline at some time in the relatively near-future. But wait—isn’t the U.S. producing a record amount of oil? Yes, U.S.…

Pessimists, Optimists and The Straw Man Fallacy

Marco Raugei and Chris Nelder spent 75 minutes tilting at straw men on Nelder’s The Energy Transition Show last month. After the discussion with Raugei, Nelder launched into a 30-minute soliloquy about how “doomers” oppose the energy transition based on shoddy scholarship, old data and poor methodology.

The conversation with Raugei was boring and lacked substance. Nelder’s monologue was interesting and lacked substance.

The premise of the podcast was to compare and contrast two opposing viewpoints on climate change and the renewable energy transition—the systemic pessimists and the technological optimists—taken from Raugei’s recently published paper, Addressing a Counterproductive Dichotomy in the Energy Transition.

In the episode “Doomers vs Transitionistas,” the optimists are described as the slightly naive good guys who believe that a renewable energy transition away from fossil fuels is the only sensible way to address climate change. The pessimists are the cynical bad guys who believe that growth of the human enterprise is destroying the planet’s ecosystem, and that substituting renewables for fossil fuels won’t change that outcome very much.

For Raugei and Nelder, these camps are locked in a Tolkien-type struggle that damages and devalues humanity’s need to achieve a sustainable future. Raugei offers a contemplative middle way that recognizes that there are elements of truth on both sides. Nelder thinks the systemic pessimists are just doomers who are out-of-touch with the advances of renewable technology.

The problem with the show’s premise is that neither opposing camp is real. They are caricatures of end-member positions. Despite Raugei’s attempts to be neutral and objective, Nelder’s bias in favor of renewables overwhelms the conversation.They both use a straw man fallacy that largely misrepresents the systemic pessimist position and then refutes it.

A straw man is an argument that distorts an opposing position into an extreme version of itself and then argues against that extreme version.

“The straw man fallacy avoids the opponent’s actual argument and instead argues against an inaccurate caricature of it.”
Lindsay Kramer

Calling the two camps “pessimist” and “optimist” reveals the obvious bias of the straw men. No examples are given to support either position beyond a brief discussion of Raugei’s published disagreements with Siebert and Rees (2021) late in the podcast. The show is a tiresome series of generalities without evidence except that Nelder and Raugei say that it’s so.

Nelder’s 30-minute monologue after his conversation with Raugei is more interesting. He departs from the niceties of systemic pessimists and calls this “tribe” the doomers. He acknowledges that a renewable transition will involve economic contraction and that the ecological overshoot concerns of the doomers are real and valid. The doomers that he mentions include me.

Nelder asks, why don’t the doomers want the energy transition to succeed, and don’t believe that anything can be done about climate change?

“Doomers are caught up in a terrifying rapture. For them, doom and collapse are a near-term reality, something I think many of them expect to experience in their lifetimes…Some of them seem to have an associated savior complex.

“It’s this massive, pervasive all-encompassing hallucination. It’s closer to generalized anxiety disorder than scholarship…They’re looking for confirmation not information. Believing that everything is futile and that we’re heading for extinction is a handy way of simplifying a complex world….

“All their standard talking points about why the energy transition will never work—EROI, Jevon’s Paradox, resource depletion, the monetary system and debt, etc.—are not problems that will meaningfully impede the energy transition. They just aren’t.”

Since he cites me as a doomer, I have to say that I don’t believe many of the things that he says characterize my “tribe.” I don’t think that civilization is doomed or that we’re heading for extinction. The world is probably going to poorer in the future than it is today but I doubt that living standards will be lower than those in my youth during the 1960s and 1970s. I do not feel anxious about the future nor do I think that a simpler world will solve our ecological crises.

EROI is an elegant concept that doesn’t have much practical application in my work. Jevon’s Paradox is interesting but is hardly a guiding principle for me. I routinely remind my colleagues that oil depletion is not a problem today nor do proved reserves suggest that it will be in this decade.

Unlike Nelder, I take the fragility of the financial system and debt quite seriously along with most credible economic analysts and banking excecutives. I see great uncertainty and even peril in the collapse of the current world order and emergence of a multi-polar world. I see big problems with the ever-increasing levels of complexity in our society, and the deterioration of social structures and governance.

None of this suggests, however, that I believe in an end of days as Nelder says that I do.

I strongly support the advance of renewable energy and favor a rapid unwinding of fossil fuel consumption. I strongly disagree with Nelder that renewables will provide cheap, abundant energy but agree that it will be cleaner.

For all his claims of energy scholarship, I imagine that his expertise is in electric power and not the full energy spectrum. The importance of electric power will increase but no credible projection anticipates that it will dominate energy supply over the next two-and-a-half decades.  Figure 1 shows the International Energy Agency’s expectation that electric power will increase from 20% in 2022 to 30% by 2050.

Figure 1. Electric power accounted for 20% of world energy consumption (89 EJ) in 2022. It is expected to increase to 30% (159 EJ) by 2050. IEA Stated Policies Scenario. Source: IEA & Labyrinth Consulting Services, Inc.

That inconvenient fact is hard to square with Nelder’s testimonial that “the energy transition is necessary and it’s working and it absolutely will work.”

Electric power cannot replace fossil energy for the production of cement, steel, plastic and fertilizer (Figure 2). Without these products, modern society will collapse. We have no idea how to create these pillars of civilization without fossil fuels. That doesn’t mean that I support fossil fuels. It’s just a fact. No amount of energy transition optimism can change that, at least not within the current window of climate-change urgency.

Figure 2. Four pillars of modern civilization can only be made using fossil fuels. 4.4 billion tons of cement, 1.95 billion tons of steel, 0.47 billion tons of plastic and 0.21 billion tons of fertilizer were produced in 2021. Source: Our World in Data, USGS, Statista & Labyrinth Consulting Services.

Nelder has created a straw man that supposedly describes my views as a leading doomer. It’s wrong. Then he refutes his imaginary creation and many of his listeners are convinced that I think that civilization is ending, humans will become extinct and there’s nothing that can be done.

He says,

“The doomers have put out a lot of shoddy scholarship. I’m sorry but it’s the truth…The doomer views on the energy system generally rely on very grossed-up analyses and absurd simplifying assumptions based on very old data and poor methodology and, by and large, it’s wrong.”

He and Raugei show no data nor mention any specific information to support their positions or their straw men. I’d call that pretty shoddy.

Nelder claims to have read everything that I have written. He characterizes the doomer—and, therefore—my approach  as follows:

“We have analyzed this evidence and come to the conclusion that civilization is doomed. They perceive that civilization is doomed so they proceed to round up evidence that supports that view.”

I have not and would never say anything like that because that’s not what my work indicates.

Nelder presents a binary choice—be a doomer or “work as hard as we can on the energy transition to do something about climate change.”

That’s an absurd and simplistic way of thinking.

If he has in fact read my work, he would know that I recommend a reduction in the consumption of all energy, not substituting renewable for fossil energy.

Figure 3 shows that energy consumption correlates well with carbon emissions, global heating, overshoot of planetary boundaries, world GDP and population. Tinkering with incremental volumes of renewable vs fossil energy consumption is unlikely to change the other patterns very much.

Nelder and I agree about the urgency of doing something about climate change. Unless he has a more credible projection for electricity use than the IEA, EIA, BP or any other credible organization, why wouldn’t he agree with me that reducing energy use is a good idea? How is my recommendation inconsistent with doing something about climate change? Why is it doomy?

Figure 3. Carbon emissions, heating, overshoot of planetary boundaries unlikely to decrease as long as energy consumption, world GDP and population continue to increase. Source: OWID, Global Footprint Network , Global Carbon Atlas, NOAA & Labyrinth Consulting Services, Inc.

It’s unlikely that society will voluntarily reduce energy consumption but I believe that nature will impose limits if we humans cannot impose them on ourselves. That doesn’t mean the end of civilization or extinction of the human species. It means that circumstances will force us to constrain our behavior.

I have provided dozens of articles and presentations with hundreds of charts like the three in this post that are all publicly available for free.

Nelder has presented opinion without any reference to this supporting data. He has referred to Siebert’s and Rees’ research, claims that their work has been debunked but does not describe or explain what that’s about or why it matters.

Nor does he offer data to support his claim of shoddy scholarship by any of the other doomers that he mentions (Richard Heinberg, James Howard Kunstler, Gail Tverburg, Art Berman, Vaclav Smil, Nate Hagens, Charlie Hall, Pedro Prieto, Dave Hughes, Simon Michaux, Raul Ilargi Meijer, Alice Friedeman, Tom Murphy, Dave Cohen, Colin Campbell).

Nelder has presented an opinion piece in his “Doomers vs. Transitionistas” episode. But as he says, “Opinion is not science.”

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Nuclear Is Not The Answer

Among the most frustrating parts of discussions about the human predicament is the widespread belief that nuclear energy is the answer. It’s not. If money were not a consideration—but it is—nuclear plants just can’t be built fast enough to make much of a difference.

The only solution to climate change and the ecological crisis is to dramatically reduce energy consumption. All energy consumption—not just fossil fuels. That was the core message of a talk that I gave at the University of Texas Energy Symposium in September called Substituting Renewable Energy for Fossil Fuels is a Doomsday Stratagem.

The first question from the audience began with this statement, “A one-child policy is something we should all be espousing and allowing people to take their lives after age 60 if they want without ruling it a suicide. Things like that should be absolutely in the policy list.”

My reply was to do what seems right to you but recognize that these kinds of things will make no difference in the window of urgency for the earth’s environmental crises. And so it goes with most “solutions” to our predicament.

I’m not naive. I have no expectation that society will reduce energy consumption either voluntarily or by government mandate but it is the only realistic solution. The problem for most people is that it’s just not the right solution. The right solution is one that allows society to continue on its current path with a few relatively comfortable tweaks like substituting renewable energy for fossil fuels or designing a circular economy. People will follow any mirage rather than acknowledging the truth because the truth is too hard.

Nuclear energy is not a mirage but neither is it the answer to our energy and environmental problems. It’s a proven energy source unlike many mirage technologies. Nuclear fusion, salt reactors and SMRs (small nuclear modules) are frontier technologies that are unlikely to have much effect in the critical decades ahead. That doesn’t diminish their potential to make a difference. Just not in the current window of urgency.

Nuclear’s greatest limitation is that its only practical use today is to generate electric power. Electricity is only 20% of global energy use so nuclear and renewable energy do little to affect total consumption. Their greatest potential benefit is to reduce coal use.

IEA’s recently published World Energy Outlook 2023 indicates that electric power will increase over the next few decades but only to about 30% of total world energy consumption (Figure 1). Nuclear’s contribution is expected to remain flat at about 2% of total energy use through 2050.

Figure 1. Electric power expected to increase from 20% of world energy use to 30% in 2050. Nuclear to remain flat at 2% of global final energy consumption through 2050. IEA Stated Policies Scenario. Source: IEA & Labyrinth Consulting Services, Inc.

Percentages, however, can be misleading. The percent nuclear is flat because renewables, solar and wind are projected to increase so much. Total nuclear generation will increase 1,671 TWh (Terrawatt hours) (+62%) from 2022 to 2050 in IEA’s Stated Policies scenario shown in Figure 1. That will probably be used mainly as base load support for intermittent solar and wind electric power.

EIA’s International Energy Outlook 2023 is less optimistic that electric power will increase than in the IEA projection but agrees that nuclear will only account for about 2% of delivered energy consumption through 2050 (Figure 2). Nuclear output will increase but not as a percentage.

Figure 2. Electric power expected to increase from 19% of world energy use to 22% in 2050. Nuclear to remain flat at 2% of delivered energy consumption through 2050. EIA Reference Case. Source: EIA & Labyrinth Consulting Services, Inc

These projections are almost certainly wrong but they are notionally reasonable.

Let’s think about the constraints on new nuclear generation without considering cost. Eight new nuclear plants were completed worldwide in 2022. An average of nine new plants per year must be completed to go from 2,682 terrawatt hours in 2022 to IEA’s estimate of 4,353 terawatt hours of generation in 2050. In order to double that, an additional 24 plants must be added each year for a total annual addition of 33 new plants per year. Building four times the number of plants completed in 2022 every year for the next 27 years would move nuclear to 4% of total energy supply. That’s not going to happen. And even if it did, 4% is not going to change our predicament.

Some may argue that Gen III+ reactors and small modular reactors (SMR) may make the doubling of nuclear output more feasible. Perhaps but those are frontier technologies that are unlikely to make an appreciable difference in the energy landscape over the next few decades. Nor do they change the hard truth that an awful lot of capacity has to be built just to double nuclear generation to 4%.

Nuclear power is an important part of the energy landscape and its importance will increase moving forward. It’s just not the answer.

Most of the energy and the environment debate is about climate change and finding ways to replace fossil fuels with lower-carbon forms of energy. That is what I have presented above. This is a narrow view of the human predicament that Jan Konietzko calls Carbon Tunnel Vision (Figure 3). A broader perspective is needed that includes energy, economics, population, ecology and human behavior.

Climate change is not the biggest problem facing the world. It is a symptom of the much larger problem of overshoot. That means that humans are using natural resources and polluting at rates beyond the planet’s capacity to recover. The main cause of overshoot is the extraordinary growth of human population made possible by fossil energy.

Overshoot is more difficult to dispute than climate change—the destruction of rainforests, the population decline of other species, the pollution of land, river and seas, the acidification of the oceans, and loss of fisheries and coral reefs. These are not part of any natural process and human activity is clearly responsible.

Technology, unfortunately, is no more a solution to climate change, overshoot or the human predicament that it was the primary cause for human prosperity.

Figure 3. The Carbon Tunnel. Source: Jan Konietzko

A broader view of our predicament shows that global CO₂ levels will probably flatten as population growth slows (Figure 4). The bad news is that CO₂ levels of about 500 parts per million by 2080 suggest a transition to a nearly ice-free world similar to Earth in the Late Miocene Epoch 15 million years ago. By the late 20th century, it is likely that the world oceans will be largely ice-free in the summer. The implications for rising sea level and its effect on human coastal cities and coastal plain rice production are frightening.

Figure 4. Global CO₂ levels will probably flatten as population growth slows but 2080 CO₂ levels suggest a transition to a nearly ice-free world similar to Earth in the Late Miocene Epoch. Source: Global Carbon Atlas, European Environment Agency, UN & Labyrinth Consulting Services, Inc.

An even broader view of the human predicament includes the material requirements for the technologies that are being used to limit carbon emissions. As society attempts to reduce its carbon footprint, we should be equally mindful of how this may affect its material footprint on the planet. There will be unanticipated consequences that our energy transition initiative has not considered.

Electric cars, solar panels, wind turbines, batteries and nuclear power require substantial mineral, metal and chemical inputs. The projected growth in demand for these materials will put increased pressure on the planet’s natural resources and will require substantial use of fossil energy for their extraction, transport, manufacture, and distribution.

This perspective indicates that fossil fuels are not the biggest component of society’s material footprint. They account for only 17% of society’s effect on the planet (Figure 5). Non-metallic minerals account for 47%, biomass for 27% and metal ores for 10%.

Figure 5. Fossil fuels are not the biggest component of society’s material footprint. Non-metallic minerals accounted for 47% in 2019. Biomass accounted for 27%, fossil fuels for 17% & metal ores for 10%. Source: Global Material Flows Database & Labyrinth Consulting Services, Inc.

Society’s material footprint and global GDP correlate almost perfectly with an R² of  0.99 (Figure 6). This indicates that continued economic growth will result in ever-greater levels of society’s material footprint. That in turn suggests that an energy transition will have little net effect on society’s material footprint on the planet.

Figure 6. Society’s material footprint and global GDP correlate almost perfectly (R² = 0.99). Continued economic growth will result in ever-greater levels of material footprint. Source: Global Material Flows Database, World Bank & Labyrinth Consulting Services, Inc.

A still broader view considers the ecological footprint of the human enterprise on the earth. This is a measure of the human impact on the environment and nature’s capacity to support people and their economies. Society has been exceeding nature’s carrying capacity by an average of 71% since 2010.

Carbon emissions and the overshooting of planetary boundaries are unlikely to decrease as long as energy consumption, world GDP and population continue to increase (Figure 7). The interrelationship of these factors with the degradation of Earth’s ecosystem means that there are no solutions without a structural change in all of these factors as a starting point. This implies that a civilizational paradigm shift is required.

Figure 7. Carbon emissions and overshoot of planetary boundaries are unlikely to decrease as long as energy consumption, world GDP and population continue to increase. Source: OWID, Global Footprint Network , Global Carbon Atlas & Labyrinth Consulting Services, Inc.

When I  talk to people about energy, the environment and the human predicament, they want me to help them understand what society can do to solve the problems that I describe. They are often frustrated when I tell them that it’s not that simple. Focusing on one part of the predicament like emissions or nuclear power may feel satisfying but simply shifts most of the problem somewhere else.

Energy is the organizing principle that connects all of the elements of earth systems and human society. If we use less energy, emissions will decrease. Energy consumption and GDP have an almost perfect correlation so less energy use will reduce economic growth. Less energy will force a reduction in population. Lower economic growth, fewer emissions and a smaller population will result in a reduced human footprint on the environment. It’s logical but not simple. It won’t happen voluntarily so it will be imposed by circumstances. It will be traumatic.

Making adjustments like substituting renewable energy for fossil fuels is like removing pieces from a Jenga tower. We’re pulling out pieces but don’t think it will collapse. In the Jenga game, the tower always collapses.

The answer is to end the delusion that we can substitute one form of energy for another, and that it will solve all our problems. Nuclear power is part of the solution but it’s not the answer. Let’s acknowledge the complexity. The answer is to use less energy. It’s time to get honest about the human predicament.

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The Impossible Dream of Emissions Reduction

Lowering CO2 emissions while also increasing energy consumption and GDP is an impossible dream. Emissions will at best stop increasing as long as energy consumption and GDP continue to grow.

In its World Energy Outlook 2023, the IEA (International Energy Agency) expects world GDP to double by 2050 and total energy consumption to increase but somehow the agency believes that CO₂ emissions will fall from 37 to 30 billion tons (Figure 1).

Figure 1. IEA expects world GDP to double by 2050 from $159 to $339 trillion (+2.6%/year). Global total energy consumption will increase +21% from 436 to 536 exajoules (EJ). CO₂ emissions will decrease -20% from 37 to 30 billion tons. Source: IEA & Labyrinth Consulting Services, Inc.

The problem with that projection is that energy consumption and CO2 emissions have a statistically perfect, linear correlation. Figure 1 shows that the correlation coefficient R² between energy consumption and CO emissions since 1800 is 0.997 (1.0 is perfect).

Figure 2. The correlation between world energy consumption and CO₂ emissions is statistically perfect since 1800. Source: Our World in Data & Labyrinth Consulting Services, Inc.

It is only slightly more hopeful that the correlation between energy consumption and CO2emissions is also perfect but at least its slope has flattened over the last decade.

Figure 3. The correlation between world GDP and CO₂ emissions is statistically perfect since 1800. Its slope has changed since about 2012. Source: Our World in Data & Labyrinth Consulting Services, Inc.

Those correlations complicate the popular idea that CO2 emissions can be substantially reduced by substituting renewable energy for energy from fossil fuels. IEA’s latest report, however, suggests that the seemingly impossible is possible—energy consumption is expected to increase +21% but emissions will fall -20% by 2050.

Coal accounted for 45% of all CO2 emissions from combustion activities in 2022 and 71% of emissions from coal are from electric power generation (Figure 4). That is the best explanation for why climate-change efforts are focused on power generation even though electricity accounts for only about 20% of world energy consumption.

Figure 4. Coal accounts for 45% of world CO₂ emissions from combustion of fossil fuels and 71% of coal emissions are from electric power generation. Source: IEA & Labyrinth Consulting Services, Inc.

I am going to simplify analysis by initially limiting discussion to electric power.

IEA’s reference case Stated Policies Scenario suggests that renewable sources will increase from 29% of total electric power in 2022 to 70% in 2050, and that generation from coal will fall from 36% in  2022 to 9% in 2050 (Figure 5). Electric power generation will increase 86% from 29 terawatt hours (TWh) in 2022 to 54 TWh in 2050. Electricity will increase from 20% to 30% of total final consumption by 2050.

Figure 5. Renewables will increase from 29% of total electric power in 2022 to 70% in 2050. Coal will fall from 36% in 2022 to 9% in 2050. Source: IEA & Labyrinth Consulting Services, Inc.

As a consequence, IEA expects that coal consumption will fall -7.5 exajoules (EJ) and that its CO₂ emissions will decrease -6.5 gigatons (Figure 6). In its recently published  International Energy Outlook 2023, the EIA (Energy Information Administration) disagrees. EIA projects that coal use will rise +2.3 EJ, and that coal emissions will increase +0.6 gigaton by 2050. The difference in CO₂ emissions between those forecasts is +7.6 gigatons! EIA’s projection seems more reasonable based on the historical correlation between energy consumption and emissions (Figure 2).

Figure 6. IEA & EIA reference cases for coal use & emissions by 2050 have major differences IEA projects -7.5 exajoule fall in coal use & -6.5 gigaton decrease in CO₂ emissions. EIA projects +2.3 EJ consumption increase & +0.6 gigaton rise in CO₂ emissions. Source: IEA, EIA & Labyrinth Consulting Services, Inc.

At the same time, global carbon emissions have flattened as renewable energy capacity has increased but this required a four-fold average annual increase in renewable capacity since 2012 (Figure 7). Expenditures are estimated at more than $3 trillion over the last decade.

Figure 7. Global carbon emissions have flattened as renewable energy capacity has increased. This has required a four-fold average annual increase in renewable capacity since 2012. Source: Global Carbon Atlas, IRENA & Labyrinth Consulting Services, Inc.

Limiting the increase in carbon emissions from energy use is an important step in the right direction but a solution for climate change requires more.

IEA and EIA CO₂ data includes only emissions from energy combustion. Total CO₂-equivalent emissions including land-use change, methane and nitrous oxide has averaged about 17 gigatons (+52%) more than reported CO₂ over the last 20 years (Figure 8).

Figure 8. IEA and EIA CO₂ data only includes emissions from energy combustion. Total CO₂-equivalent emissions including land-use change, methane and nitrous oxide has averaged about 17 gigatons (+52%) more than reported CO₂ over the last 20 years, Source: Our World In Data & Labyrinth Consulting Services, Inc.

I do not mean to disparage progress or to imply that efforts to address climate change are a waste of time. On the contrary, IEA and EIA have provided valuable new data that helps evaluate the present state of those efforts. At the same time, there is no path forward toward reduction of carbon emissions that does not include limiting energy consumption and economic growth.

I am not optimistic that this will occur voluntarily. It will happen because the planet is a system that will self-organize around its own needs if society cannot see beyond its own selfish interests.

 

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The OPEC Artificial Oil Supply Deficit is Becoming Real

Analysts have been predicting a global supply-demand deficit since oil markets recovered from the 2020 pandemic collapse. This time it may finally happen but not for the reasons put forward over the last few years. Recent events in the Middle East are more likely to lead to higher oil prices than market fundamentals.

Before the October 7 Hamas attack, OPEC+ had been actively managing world oil supply and demand since early 2017. After oil prices fell below $100 in late 2022, OPEC+ reduced supply by 2 million barrels per day (mmb/d) (Figure 1). OPEC had never before cut production when oil prices were more than $90 per barrel. A few months later, Saudi Arabia and Russia cut another 1.7 mmb/d. This is real wealth transfer from consumers to producers despite OPEC’s claim that cuts are part of its plan to maintain stable markets.

Figure 1. OPEC+ has cut almost 4 million barrels of oil per day since November 2022. Source: CME & Labyrinth Consulting Services, Inc.

Figure 1 shows several orders of price-cycling within the overall arc of oil-price increase through June 2022, decrease to May 2023, and subsequent increase. These higher-frequency cycles represent what economist James K. Galbraith calls the choke-chain effect.

“Like the choke collar in a dog, the effect does not necessarily prevent economic growth. But as the consumption of energy resources accelerates, prices rise quickly and profitability drops rapidly. This lowers investment, sows doubts about the sustainability of growth and may also trigger a (perverted) tightening of other economic levers.”

When energy supply is abundant, oil prices fall toward the variable cost of the most efficient producers. For most of the period from 2014 through 2020, U.S. shale producers set the marginal price of oil much to OPEC+’s frustration. When supply is scarce as it has been since 2020, price is not limited by the marginal barrel but increases to the level of market concern about demand destruction.

“In a world where resources have become scarce, and also financialized, the end result will not be an indefinite series of price increases. Instead, it is a cycling of both key resource prices and financial activity.”
–James K. Galbraith, The End of Normal

Price cycling and its associated price volatility create market anxiety and unwillingness to invest in new supply. Once this kind of price cycling is established, it is likely to persist until some new technology emerges—like shale in the 2010s—or an economic slump reduces demand. Some investors are betting that renewable energy is this new technology. I wouldn’t count on it.

The Russian invasion of Ukraine in 2022 created real energy scarcity and the subsequent OPEC+ production cuts have perpetuated it. Recent events in the Middle East threaten to accentuate these factors. It seems likely that prices will cycle progressively higher as Michael Tran and Helima Croft noted recently.

“There is significant asymmetric upside to near-term oil prices in the event that the Israel-Hamas war escalates into a wider-spread regional conflict…The price path to much higher levels could still be very non-linear.”

Some analysts suggest that oil prices could surge to $150 or higher. It seems improbable that prices could sustain such levels if they are in fact reached. It is more likely that an expanded Middle East conflict and rising oil prices would result in a substantial slump in the global economy and deflation of commodity prices including oil.

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The Extreme Case for Oil Price

The recent conflict between Israel and Hamas greatly increases the likelihood for much higher oil prices but how high will prices go?

So far, most analysts are cautious because there is so much uncertainty. Ole Hansen noted a few days ago that

“No one in the right frame of mind would hold a short position [in oil] when Israel has just ordered 1 million people to leave [northern] Gaza. That threatens a massive escalation.”

Rabobank’s Joe DeLaura went a bit further saying that

“We’re headed to $100 [a barrel] no matter what this quarter.”

My own view is consistent with what Hansen and De Laura have suggested but more extreme.

I see little chance that the conflict in Israel does not involve Iran if only indirectly through its Hezbollah proxy. So far, there seems to be insufficient evidence to link Iran directly to last weekend’s Hamas attack on Israel. At the same time, it’s hard to imagine how Hamas could have trained glider pilots inside Gaza without Israeli and U.S. notice. In fact, the entire narrative that Israel simply missed the lead-up to the Hamas invasion stretches credibility.

Iran has already indicated that it will have to intervene if the Israeli operation in Gaza continues. I see almost no scenario in which Israel does not move into Gaza unless the U.S. prevents it. Play that forward and a major offensive by Hezbollah in Lebanon is nearly certain. Speculation beyond those hypotheses is pointless but should be more than enough to push oil prices above $100 per barrel.

Unless a detente is quickly arranged, oil prices could potentially retrace the early 2022 rally toward $120 per barrel (Figure 1).

Oil prices could potentially retrace the early 2022 rally toward $120 per barrel if the fighting in Israel expands to include Hezbollah on the Lebanon border. Source: CME & Labyrinth Consulting Services, Inc.

The political and economic implications of this scenario coupled with the existing war in Ukraine look dire indeed. If you think what I’ve described is extreme, I hope that you are right.

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Fatih Birol’s “I Have A Dream” Speech is Wrong

IEA executive director Fatih Birol gave his renewable energy  “I Have a Dream” speech this week.

In an opinion editorial in The Financial Times, Birol channeled American civil rights prophet Martin Luther King’s 1968 rhetoric as he proclaimed that

“The world is on the cusp of a historic turning point…Demand for each of the three fossil fuels is set to hit a peak in the coming years. This is the first time that a peak in demand is visible for each fuel this decade.”

Fact check—that’s not true. The IEA projected a -36% decrease in fossil fuel final consumption in last year’s 2022 announced pledges scenario (Figure 1).  In that report, consumption of all three fossil fuels were projected to decrease—liquid fuels by -26% from 2021 to 2050, natural gas by -38% and coal by -64%.

Figure 1. -36% decrease in fossil fuel final consumption in IEA’s 2022 announced pledges scenario. Liquid fuels expected to decrease -26% from 2021 to 2050. Natural gas to decrease -38% and coal -64%. Source: IEA & Labyrinth Consulting Services, Inc.

In this week’s op-ed, Birol went on to say that

“The growth of electric vehicles around the world, especially in China, means oil demand is on course to peak before 2030.”

That’s not true either. Despite the headlines about the explosive growth of EVs as a percent of new car sales, IEA data shows electric passenger cars accounted for only 2.1% of the global fleet in 2022 (Figure 2).

Figure 2. Electric passenger cars accounted for 2.1% of the global fleet in 2022. Source: IEA & Labyrinth Consulting Services, Inc.

Birol neither showed nor cited any data in his article but the The Financial Times published an IEA graph in a separate article meant to support his I have a Dream speech (Figure 3).

Figure 3. Oil demand set to plateau. Source: Financial Times.

The graph is problematic because the energy values on the y-axis are about 68% higher than the historical levels indicated by IEA published data (Figure 4).

Figure 4. Historical oil demand data in Fatih Birol’s FT chart are wrong. 2020 and 2021 data are 68% higher than IEA’s WEO 2022 report data. Source: IEA & Labyrinth Consulting Services, Inc.

I look forward to IEA’s release of its 2023 World Energy Outlook in October so I can decipher what Birol suggested in his recent op-ed. I give him credit for at least acknowledging that progress toward a low-carbon future is inadequate.

“The projected declines in demand we see based on today’s policy settings are nowhere near steep enough to put the world on a path to limiting global warming to 1.5C.”

In the meantime, the world does not need speeches about renewable energy dreams. It needs ruthlessly honest direction from leaders like Birol. He should but will not state that the only solution to climate change is greatly reduce consumption of all energy, not just fossil fuels.

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Substituting Renewable Energy for Fossil Fuels is a Doomsday Stratagem

Insanity Check on Climate Change

Stanford climate scientist and ecologist Chris Field talked with podcast host Sam Harris last week. He was quite good through most of this episode called Sanity Check on Climate Change: A Conversation with Chris Field until he said,

“A few years ago, it was really unclear how we would bring emissions of carbon dioxide especially down to zero but now there are really clear pathways.”

That statement and everything that followed needed an insanity check.

Most climate-change policy addresses only electric power generation. That makes some sense since that sector is responsible for about 40% of global CO2 emissions.

At the same time, the power sector represents less than 20% of global energy consumption. It is unlikely to increase to much more than that 25% by 2050 if we optimistically assume that countries meet their stated-policy climate commitments (Figure 1).

Figure 1. IEA expects electric power to increase from 20% today to about 25% of world final energy consumption by 2050 in its stated policies scenario. Source: IEA & Labyrinth Consulting Services, Inc.

What is the plan for the other 80% of world energy consumption?

If you think that electric vehicles (EVs) are the answer, you have a lot more faith in things that haven’t happened yet than I do. Despite the headlines about the explosive growth of EVs as a percent of new car sales, electric passenger cars accounted for only 2.1% of the global fleet in 2022 (Figure 2).

Figure 2. Electric passenger cars accounted for 2.1% of the global fleet in 2022. Source: IEA & Labyrinth Consulting Services, Inc.

Perhaps you imagine a burst of EV growth that has not yet appeared as of 2022. The U.S. Department of Energy’s EIA does not share that view. EV energy consumption is expected to increase to only 5% of world transportation by 2050 (Figure 3).  Gasoline use is expected to decrease from 41% to 36% and diesel use from 37% to 30%. Those are steps in the right direction but hardly consistent with the popular idea that oil use will collapse because of EVs.

Figure 3. EV energy consumption increased expected to increase to 5% of world transportation consumption by 2050. Gasoline is expected to decrease from 41% to 36% and diesel from 37% to 30%. Source: EIA & Labyrinth Consulting Services, Inc.

Some will say that these projections are wrong and I agree. All projections are wrong. Still, projections by credible organizations like EIA and IEA should not be dismissed. They are based on the best available data and both agencies have an energy transition bias. If EIA is 100% wrong, that means that EVs will account for 10% of energy consumption by 2050. Big deal. You can play those multiplication tables forward and see that it would require a miracle for EVs to replace gasoline and diesel over the next few decades.

To compound this problem, passenger cars accounted for only 8% of global CO2 emissions in 2020 (Figure 4). People should buy EVs if they like them but not because they will save the planet from climate change.

Figure 4. Only 8% of CO2 emissions from passenger cars–buy an EV and save the world 18% from 4 pillars of civilization and 40% from electric power and heat. Source: IEA & Labyrinth Consulting Services, Inc.

Most renewable energy enthusiasts ignore the cost and land use-implications of increased wind and solar energy use, and the effect of energy substitution on the environment. Solar PV is expected to account for 24% of world electric power generation by 2050 in IEA’s stated policies scenario (Figure 5). Wind will account for 21%, hydro 14%, nuclear 9%, natural gas 13% and coal 12%.

Figure 5. Solar PV expected to account for 24% of world electric power generation by 2050. Wind to account hydro 14%, nuclear 9%, natural gas 13% and coal 12% IEA Stated Policies scenario. Source: IEA & Labyrinth Consulting Services, Inc.

That means adding 9,550 Gigawatts of wind and solar electric power generation from 2020 to 2050. The incremental land-use for that additional capacity will be approximately 3.2 million square kilometers or an area about the size of India. The cost will exceed $10 trillion.

Table 1. Cost and land-use effects of increased wind and solar for electric power generation in IEA’s “stated policies” scenario. Source: IEA & Labyrinth Consulting Services, Inc.

IEA’s Net Zero by 2050 scenario requires roughly seven-and-a-half times the land use and five times the cost.  The additional land use compared to 2020 is approximately 24 million square kilometers or an area about the combined size of Russia and Australia (Table 2). The cost would be more than $51 trillion.

Table 2. Cost and land-use effects of increased wind and solar for electric power generation in IEA Net Zero scenario. Source: IEA & Labyrinth Consulting Services, Inc.

Renewable researchers will correctly point out that neither solar nor wind farms occupy 100% of the area on which they are located, and may be integrated into existing crop and pasture land to a greater or lesser degree. It’s also important to note that not all areas are well-suited for wind and solar so country boundaries only serve as visual guidelines. The amount of land use is, nonetheless, stunning and its potential effect on the natural world is horrifying.

In addition to these concerns, IEA’s projections assume unrealistic improvements in energy efficiency. IEA’s Net Zero Roadmap assumes that consumption per $ GDP (energy intensity of GDP) will average 4% through 2030, and will then average 2.2% from then through 2050.

“A major worldwide push to increase energy efficiency is an essential part of these efforts, resulting in the annual rate of energy intensity improvements averaging 4% to 2030—about three‐times the average rate achieved over the last two decades.
–IEA

It is unclear where these improvements in energy intensity will come from but historically, the rate has been decreasing instead of increasing. Without these outsized efficiency gains, energy consumption and carbon emissions will almost certainly continue to increase. As the IEA explained,

Without a projected annual average reduction of 2.2% in energy intensity, i.e. energy use per unit of GDP, TES (Total Energy Supply) in 2050 would be around 85% higher.”
–IEA

In other words, all of these “really clear pathways” to net zero are not only unclear but are almost certainly wrong.

Most well-intentioned climate-change activists are energy blind and simply don’t know that renewable energy is a partial solution to carbon emissions that applies mostly to electric power generation. Field, however, should know better. He apparently doesn’t see or chooses not to talk about the limitations of renewable energy.

 

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The Big Lie About Fossil Fuel Subsidies

The IMF’s media release on fossil fuel subsidies is a big lie.

The International Monetary Fund (IMF) claimed that 2022 fossil fuel subsidies were $7 trillion in its IMF Fossil Fuel Subsidies Data: 2023 Update released last week. Although the report implied that much of this was not money given directly to fossil fuel companies, the explanation was confusing at best and misleading at worst.

That doesn’t really matter because its news release and ensuing media reports stated that $7 trillion was a gift to an industry that is destroying the planet.

Figure 1. IMF blog post, August 24, 2023. Source: IMF.

I do not want to defend the fossil fuel industry but the IMF’s message is opportunistic, political, journalistically dishonest and more appropriate to Fox News than to an international opinion leader and supposedly honest broker.

Only $1.3 trillion (23%) of $7 trillion in government fossil fuel support is really a subsidy—what the IMF calls “explicit” subsidies—and only $51 billion (4%) of that goes directly to support fossil fuel companies (Figure 2). $5.7 trillion (77%) are “externalities” for environmental damage & under-pricing—what the IMF calls “implicit” subsidies.

Figure 2. Only $1.3 trillion (23%) of $7 trillion in government fossil fuel support is really a subsidy and only $51 billion (4%) of that goes directly to support fossil fuel companies. $5.7 trillion (77%) are “externalities” for environmental damage & under-pricing. Source: IMF & Labyrinth Consulting Services, Inc.

The IMF news release shown in Figure 1 went on to say that

“Subsidies for oil, coal and natural gas are costing the equivalent of 7.1 percent of global gross domestic product. That’s more than governments spend annually on education (4.3 percent of global income) and about two thirds of what they spend on healthcare (10.9 percent).”

Figure 3 puts that hyperbolic statement in perspective. The 2022 $1.3 trillion “explicit” subsidy was 1.3% of world GDP. The $51 billion true subsidy to fossil fuel companies was 0.0001% of world GDP.

Figure 3. The 2022 $1.3 trillion “explicit” subsidy was 1.3% of world GDP. The total $7 trillion 2022 “subsidy” was 7.1% of world GDP. The $51 billion true subsidy to fossil fuel companies was 0.0001% of world GDP. Source: IMF & Labyrinth Consulting Services, Inc.

More detailed data for U.S. provides further clues about how subsidies are distributed. Renewable energy accounted for 53% of 2022 U.S. subsidies compared to 11% for fossil fuels (Figure 4). Energy conservation accounted for 34%.

Critically, 77% of all 2022 subsidies were in the form of tax credits.

Figure 4. Renewables accounted for 53% & conservation for 34% of 2022 U.S. energy subsidies Fossil fuel subsidies accounted for only 11% of total and 77% of all 2022 subsidies were tax credits. Source: EIA & Labyrinth Consulting Services, Inc. EIA Current/EIA Federal Financial Interventions and Subsidies in Energy in Fiscal Years 2016–2022_AUG 2023_DATA TABLES

This is quite a different picture than the IMF report and media headlines suggest.

There is little doubt that fossil fuels are the principal source of carbon emissions. Nor should we excuse the intentional efforts by companies to conceal early knowledge of these dangers from the public.

Neither should we excuse the IMF’s intentional effort to blame fossil fuel companies for subsidies that they do not receive. Ninety-six percent of the “explicit” subsidies in 2022 went to help consumers bear the strain of higher fossil fuel prices. Should they be criticized for taking money from education and healthcare as the IMF falsely implies that fossil fuel companies did?

Our global economy is more than 80% dependent of fossil fuels. All economic players for the last 200 years are accountable for that. The IMF report implies that fossil fuel companies are solely responsible for climate change when we’re all to blame for not only using their products but demanding them in ever greater volumes and at lower prices.

Lisi Krall recently observed in a podcast with Nate Hagens that,

“We have a system that’s been in play in various forms for 10,000 years…Fossil fuel did not create capitalism…We can’t manage to have the expansionary kind of [economic] dynamic that we have going on now without fossil fuels.”

Blaming fossil fuel companies for climate change is a childish form of behavior that does nothing to help clarify our present planetary predicament.

 

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Another Oil Meme Bites The Dust: Tight Supply Turns to Oil Surplus

Mainstream oil analysts have bombed on their two big calls for 2023.

The first call was for oil prices to soar as China’s economy and oil demand recovered after Covid lockdowns. That idea went down in flames several months ago. It was replaced by a call for prices to soar as global oil supply fails to keep pace with demand, and a huge supply-demand deficit opens.

Goldman Sachs recent statement summarizes this view concisely:

“The main reason for oil outperformance is that the oil market continues to price sizeable deficits”

That now seems ready to flop as new supply from Iran, Iraq, Canada and several other producers is coming into the market

After months of daily drum-beating about tight supply, PVM’s Tamas Vargas made this comment yesterday:

“Whilst the oil balance could obviously deteriorate, currently there is no reason to believe that global oil consumption would approach, let alone fall below supply.”

The big supply-demand deficit probably isn’t happening but at least there won’t be a big SD surplus! Another meme bites the dust.The key element for Vargas is that Iraq may resume Kurdish exports that have been stalled for many months.

Grant Smith made this observation today:

“Since the start of the year, oil watchers have widely predicted that prices would end 2023 on a high note. That forecast is looking more and more precarious.”

How can mainstream analysts get things so consistently wrong? Because they take perfectly reasonable hypotheses and fail to test them against updated production and projections by credible sources.

For example, Canada production is estimated to increase +6% in the second half of 2023 compared with the first half (Table 1). Guyana output is expected to rise +11.2% over the same period and +52% in 2024 compared to 2023.

“Canadian crude output to increase 175,000 bpd this year & another 200,000 bpd in 2024.”
RBN Energy

Table 1. Incremental production changes from August 2023 EIA STEO. Source: EIA & Labyrinth Consulting Services, Inc.

What about the OPEC production cuts and other OPEC and non-OPEC countries? Angola, Iran and Venezuela production increased in June and July compared with the first four months of 2023 (Table 1). EIA projects that non-OPEC liquids will be 1% higher in 2H 2023 than in 1H and 2% higher in 2024 than in 2023. Middle East output is expected to be 3.6% higher in 2H than in 1H 2023, and 2.4% higher in 2024 than in 2023.

Of course, these are projections but they do not support that meme that supply will fall.

That’s supply but what about demand? Figure 2 shows both OPEC and EIA supply and demand data, and corresponding projections. At the bottom of the chart, the blended supply-demand balances are indicated. They suggest that the supply-demand deficit in the second half of 2023 is unlikely to be greater than in the same period in 2021 when Brent monthly average price did not exceed $83.54 and WTI did not reach $81.50 per barrel.

Figure 1. Blended OPEC-EIA oil data indicates -1.6 mmb/d supply-demand deficit in 2H 2023. 2024 average SD balance expected to be a slight -0.24 mmb/d deficit. Source: OPEC, EIA & Labyrinth Consulting Services, Inc.

I’ve shown in previous posts that supply-demand balance is a terrible indicator of oil price and that comparative inventory does a much better job. Figure 2 shows Brent comparative inventory (C.I.) and the price-inventory volume yield curves for 2021 and early 2022 (orange), and 2022 through the present in blue.

The orange circles and arrow near the text “4Q 2022 excursion” represent the early part of the price-discovery excursion that resulted from the first failed analyst meme about the China oil-demand rebound. The blue circles and arrows near the text “1Q 2023 excursion” mark the second part of that price-discovery excursion including its reversion to the blue yield curve in May and June 2023.

The promotion of the second false meme about global supply deficits triggered a third price-discovery excursion away from the blue yield curve leading to the August 2023 data point at -69 mmb less than the 5-year average and $85 per barrel.

Projecting a perpendicular line from the August data point to the blue yield curve and following a horizontal line to the y-axis indicates a market clearing price of about $75 per barrel for Brent. That means that its $85 average August price is about $10 over-priced. The market is now including a $10 premium based on the failing supply-demand deficit meme that analysts have been pushing for months.

Figure 2. Estimated average Brent spot price of $85 for August is about +$10 over-priced based on the comparative inventory yield curve. Source: EIA STEO & Labyrinth Consulting Services, Inc.

Analysts like to blame their failed calls on broader market trends like a weak global economy, a strong U.S. dollar and rising interest rates.They don’t understand that oil price is the macro indicator because oil is the economy.

They haven’t yet grasped that the oil paradigm that guides them isn’t working, and hasn’t been working very well for at least the last five years. I am sometimes accused of being negative about oil markets but I am neither pessimistic nor optimistic.

I am a scientist. I do not rely on what others say unless the data supports those views. That doesn’t mean that I’m right.

What perplexes me most about mainstream analysts is their certitude about reductionist cause-and-effect axioms that become memes when enough of them repeat what the other said.

Oil markets are complex systems in which uncertainty is given. That said, my sense is that global oil prices will probably fluctuate between $75 and $90 for the rest of 2023, and that the broader trend will be generally lower.

 

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The Future of Oil

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We Can’t Handle The Truth About The Human Predicament

Climate change is as obvious as gravity. The only people who debate gravity have advanced degrees in theoretical physics. Almost everyone in America—regardless of training or experience—has a strong opinion about climate change for some reason.

Cognitive dissonance is part of the problem. This is what happens when two strongly held beliefs conflict.

Most Americans believe in the progress narrative—that human ingenuity, technology and hard work can overcome almost any obstacle.  The idea that the effects of progress may be harming the planet, other species and future generations of humans creates psychologic conflict or cognitive dissonance. We cannot hold both beliefs at the same time so we deny the existence of one or the other—in this case, climate change.

For many, the default position is—in the unlikely event that climate change is a problem—that technology, ingenuity and hard work will find a solution. That works just fine as long as we are energy- and systems-ignorant. Once we open our eyes to the bigger picture, it becomes clear that it’s not that simple.

The progress narrative is only partly true. It leaves out the fact that most of civilization’s progress—at least as measured by economic growth or GDP (gross domestic product)—over the last few centuries is because of fossil fuels (Figure 1). The role of technology and innovation was secondary.

Figure 1. The increase in world economic growth correlates with fossil fuel consumption. Source: EIA, BP, IEA, FRED, OWWD, World Bank & Labyrinth Consulting Services, Inc.

Oil is the economy and profits are linked to its consumption. The R-squared (r2) correlation between oil consumption and global GDP is 96% (Figure 2). That correlation is as statistically perfect as it gets in the real world.

Figure 2. World oil consumption vs GDP (gross domestic product). Oil is the Economy and profits are linked to its consumption. Source: EIA, World Bank & Labyrinth Consulting Services, Inc.

For all of our technology and ingenuity, oil, natural gas and coal are responsible for the wealth of nations. Every barrel of oil equivalent (boe) contains about 4.5 human-years of work. That means that our civilization has more than 380 billion fossil-energy slaves working for us all of the time (Table 1).

Table 1. Oil, natural gas and coal account for about 85 billion barrels of oil equivalent consumption every year. That converts to more than 380 billion years of human work. Source: BP 2020 Statistical Review of Energy and Labyrinth Consulting Services, Inc.

 

We have added an average of 4.7 billion fossil slaves every year for the last decade in addition to the base amount of almost 340 billion 10 years ago (Figure 3).

Figure 3. Average addition of 4.7 billion work-year equivalents from coal, natural gas and oil consumption over the last decade on top of the base level of 340 billion human work-year equivalents 10 years ago. Source: EIA, BP, IEA, FRED, OWWD, World Bank & Labyrinth Consulting Services, Inc.

This broader perspective shows that simply switching from fossil fuels to renewable energy is not a solution, certainly not in the time window of urgency for climate change. Nor has anyone proven that net emissions from renewable energy are substantially less than from fossil fuels once all of the embedded energy consumption in their extraction, transportation, manufacture and distribution are taken into account.

Assuming that renewable emissions are lower, there is simply not time nor resources available to scale from about 7% wind and solar to a large enough percentage of world energy consumption to make a difference. Even the most optimistic net-zero projections do not indicate that wind and solar energy will account for more than one-third of total final energy by 2050.

More importantly, climate change is not the biggest problem facing the world. It is a symptom of the much larger problem of overshoot.

Overshoot means that humans are using natural resources and polluting at rates beyond the planet’s capacity to recover. The main cause of overshoot is the extraordinary growth of human population made possible by fossil energy.

Overshoot is more difficult to dispute than climate change—the destruction of rainforests, the extinction of other species, the pollution of land, river and seas, the acidification of the oceans, and loss of fisheries and coral reefs. These are not part of any natural process and human activity is clearly responsible.

Technology, unfortunately, is no more a solution to climate change, overshoot or the human predicament that it was the primary cause for human prosperity.

Carbon emissions and the overshooting of planetary boundaries are unlikely to decrease as long as energy consumption, world GDP and population continue to increase (Figure 4). The interrelationship of these factors with the degradation of Earth’s ecosystem means that there are no solutions without a structural change in all of these factors as a starting point.

Figure 4. Carbon emissions and overshoot of planetary boundaries are unlikely to decrease as long as energy consumption, world GDP and population continue to increase. Source: OWID, Global Footprint Network , Global Carbon Atlas & Labyrinth Consulting Services, Inc.

This implies that a civilization paradigm shift is required but I think that we are psychologically incapable of acknowledging that. Even if we could notionally concede this possibility, we would immediately start rationalizing that of course technology, efficiency and human ingenuity are central to any path forward. In short order, we’d be back to carbon capture, renewable energy, circular economies and related fantasies.

We just can’t handle the truth about the human predicament.

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What The Market Knows About Oil’s Future

Warren Buffet is bullish on oil and gas. He recently committed more than $3 billion to an LNG export terminal in Maryland after increasing his stake in Occidental Petroleum. That’s because Buffet is a value investor and energy stocks are relatively cheap. Energy also generates more cash than any other sector.

Why doesn’t the market agree with Buffet?

Robert Bryce wrote a thoughtful article this week in which he explored this question. He argued that gasoline demand is booming and is likely to remain strong, and that world oil demand is expected to reach record levels in the next few years.

Javier Blas echoed some of those observations in a post this morning.

“Even with the boom in electric cars, the absolute number of gasoline-powered cars is still increasing; consumers are holding onto their vehicles longer, delaying the improvement that comes with newer and more fuel efficient models; and in Europe, consumers have swapped their diesel cars for gasoline ones, giving the latter an unlikely boost.”

Bryce further explained that America has a long-lived fleet of 284 million conventional cars that will last for years despite the strength of electric vehicle sales. He concluded that seven oil and gas companies are under-valued based on standard price-to-earnings and enterprise value-to-EBITDA ratios.

“The supermajors are all selling at big discounts to the S&P 500. So are the independents, including Devon and Diamondback.”

I agree with most of what Bryce says but am hesitant to say that the market’s view of oil and gas companies is wrong.

On the most basic level of net returns, energy stocks have consistently under-performed the S&P 500 for most of the last decade (Figure 1). The 10-year net total return for the energy sector is 3.2% compared with 11.9% for the broader market.  Moreover, energy stocks have returned -0.6% so far in 2023 while S&P performance has averaged 19.7%.

Figure 1. The energy sector has under-performed the broader S&P 500 by almost 9% over the last 10. years. Source: S&P Global.

Furthermore, U.S. transport fuel consumption does not seem quite as straight-forward to me as it does to Bryce. Gasoline consumption has been less than the 5-year average 73% of the time since January 2022 (Figure 2).

Figure 2. U.S. gasoline consumption has been less than the 5-year average 73% of the time since January 2022. Source: EIA & Labyrinth Consulting Services, Inc.

 

Similarly, diesel consumption has been less than its 5-year average 68% of the time since January 2022 (Figure 3).

Figure 3. U.S. diesel consumption has been less than the 5-year average 68% of the time since January 2022. That’s a bad signal for the economy. Source: EIA & Labyrinth Consulting Services, Inc.

Despite reports about the strength of the U.S. economy and the recent oil-price rally, energy is the economy. Neither gasoline nor diesel data provide strong support for the popular idea that the U.S. economy and oil markets are booming. Lower-than-average diesel consumption is especially disturbing because it is the hemoglobin for the movement of goods and materials. Its use is fairly inelastic in normal economic conditions. When diesel consumption falls, it is ordinarily because orders are weak.

The U.S. and world economies are still recovering from the effects of the Covid economic closure and associated supply chain problems. The supply and price shocks that followed Russia’s 2022 invasion of Ukraine will probably have a lasting effect on global markets. This coincides with a reversal in the globalization of trade that led to commodity deflation throughout much of the last 30 years.

Liam Denning made these observations a few days ago.

“As much as the onset of the war in Ukraine offered a taste of those lucrative periods where OPEC could capitalize on disruption, it was also another visceral indicator of wider disruptions. Oil embodied globalization before that was even a term, but the notion of relying on fragile or even hostile nations for life’s essentials is fast falling out of fashion. At the same time, climate change is forcing a reevaluation of energy’s physical foundations.”

Public debt rose to extraordinary levels because of both Covid and Ukraine.  It is naive to believe that is all or even mostly behind us, and it is easy to see why why markets remain cautious.

Vaclav Smil’s four pillars of modern civilization—steel, cement, plastic and ammonia—require fossil fuels now and in the foreseeable future.

“The scale of our dependence on fossil carbon make any rapid substitutions impossible…Modern economies will always be tied to massive material flows and…will remain fundamentally dependent on fossil fuels used in the production of these indispensable materials.”
–Vaclav Smil, How The World Really Works

The idea that electric vehicles may displace gasoline reflects a fundamental ignorance about the oil refining process. The idea that a green energy transition is reshaping society ignores the way the world really works.

Warren Buffet’s investments in oil and LNG make good sense because energy will always be important and well-managed companies will be successful.

At the same time, it is impossible to ignore that oil production and consumption are declining—forecasts to the contrary notwithstanding.  That is because of massive public and private debt loads, inflation, economic contraction, declining oil affordability, consumer behavior change, and limited credit for new drilling and development. The imagined transition to renewable energy is a secondary factor at best.

 

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Oil’s March to $100 or Just Another Little Rally?

Mainstream analysts feel vindicated. After three months of reprising the incredibly tight market meme, WTI has finally increased into the mid-$70 range (Figure 1). Is this the beginning of the oil price’s march to $100 or just another little rally?

Figure 1. Over-bought WTI futures come down to earth. Price has increased +$7.03 (+10%) from $67.12 to $75.42 since June 12. Source: CME & Labyrinth Consulting Services, Inc.

Today, Citigroup’s Ed Morse said about the potential trajectory for price,

“I’m comfortable thinking $90 as a real ceiling.”

That seems reasonable to me but let’s put it into some context. U.S. comparative inventory (C.I.) was about 20 mmb less than the 5-year average as of last week’s oil storage report (Figure 2). It’s been falling about 2.3 mmb per week since March. At that rate, WTI could reach $90 per barrel in about 25 weeks so it’s possible by late 2023 or early 2024.

Figure 2. Comparative inventory needs to fall about 55 mmb (275%) for WTI to reach $90/barrel. C.I. has fallen an average of 2.3 mmb per week since March so $90 is possible by early 2024. Source: EIA & Labyrinth Consulting Services, Inc.

Does that reflect the incredibly tight supply that analysts have been hyperventilating about for months? Hardly. That’s about half-way back to levels in the aftermath of Russia’s invasion of Ukraine.

Figure 3 shows blended OPEC and EIA supply-demand data and it suggests a potential deficit of about 1.7 million barrels in the second half of 2023. That’s similar to deficits in the second half of 2021 and 2022 when WTI averaged $74 and $87, respectively.

Figure 3. Blended OPEC-EIA oil data indicates -1.7 mmb/d supply-demand deficit in 2H 2023 2024 average SD balance expected to be a slight -0.24 mmb/d deficit. Source: OPEC, EIA & Labyrinth Consulting Services, Inc.

In other words, over the next six months or so, oil prices are likely to return to pretty much where they have been in recent years at similar supply-demand balance and inventory levels.

There are a million things that could and are likely to happen in 2023 that could profoundly change this context. I just don’t see any extraordinary structural change about to happen that is outside of what is normal and expected for oil markets.

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The Net Effect of Net Zero Will Be Zero

Net Zero is a naive and unscientific fantasy. The silver bullet is decoupling.

Decoupling or the energy intensity of GPD means that it takes progressively less energy consumption to produce a dollar of GDP because of improved efficiency. The net zero dream includes the counter-factual delusion that GDP and energy consumption can continue to increase while carbon emissions magically decrease simply by decoupling and by substituting one form of energy for another.

IEA’s Net Zero Roadmap assumes that consumption per $ GDP (energy intensity of GDP) will average 4% through 2030, and will then average 2.2% from then through 2050.

“A major worldwide push to increase energy efficiency is an essential part of these efforts, resulting in the annual rate of energy intensity improvements averaging 4% to 2030—about three‐times the average rate achieved over the last two decades.
–IEA

It is unclear where these improvements in energy intensity will come from but historically, the rate has been decreasing instead of increasing (Figure 1). The average from 2010 through 2021 was 1.6%, a decrease from 3.8% during the previous decade.

Figure 1. Energy consumption per $GDP has decreased progressively over time and has averaged -1.6% per year since 2010. Source: World Bank, BP & Labyrinth Consulting Services, Inc.

The agency goes on to say that,

“Without a projected annual average reduction of 2.2% in energy intensity, i.e. energy use per unit of GDP, TES (Total Energy Supply) in 2050 would be around 85% higher.”
–IEA

And that is precisely the problem. Net zero is only dream without energy intensity improvements for which there is no basis over the last 11 years.

The energy intensity of GDP calculation involves a simple arithmetic average. That may result in distortion from rich, service-oriented economies that offshore considerable energy consumption, and then import finished products. Those countries include the U.S. and other OECD nations like Japan and Germany (Figure 2).

Figure 2. GDP is proportional to oil consumption (Logarithmic scales). Source: EIA, World Bank & Labyrinth Consulting Services, Inc.

To test that potential distortion, I calculated primary energy consumption per $ real GDP for every country, and then computed a world average weighted by population. Weighted-average energy consumption per dollar GDP has averaged-1.3% since 2010 (Figure 3). In other worlds, efficiency gains are probably somewhat lower than in the simple arithmetic calculation.

Figure 3. Weighted average energy consumption per dollar GDP has averaged a -1.3% since 2010. Source: Our World in Data & Labyrinth Consulting Services, Inc.

The bigger problem is that CO2 emissions have increased since at least 1980. It is unclear if falling energy consumption per $GDP is the controlling factor  (Figure 4).

Figure 4. CO2 emissions have increased since at least 1980. It is unclear if falling energy consumption per $GDP is the controlling factor. Source: OWID, World Carbon Atlas & Labyrinth Consulting Services, Inc.

Figure 5 shows that energy consumption, economic growth, population growth and carbon emissions all increase and decrease together. It seems unlikely that consumption per $GDP—a derivative of two of the curves in the figure—is, in fact, the controlling factor for carbon emissions. What is clear from the graph is that carbon emissions are unlikely to decrease as long as energy consumption, world GDP and population continue to increase. There’s no obvious escape.

Figure 5. Carbon emissions and overshoot of planetary boundaries are unlikely to decrease as long as energy consumption, world GDP and population continue to increase. Source: OWID, Global Carbon Atlas & Labyrinth Consulting Services, Inc.

Among the factors shown in Figure 5, energy is primary. The rest are secondary. Few of those concerned about climate change seem to understand this. That’s because they want to solve the emission problem without considering the whole system. They want to treat the symptom but not the disease.

For most, this means replacing fossil fuels with renewable energy but not making other changes in their lifestyles or behavior. Others believe that economic growth is the problem and that degrowth is the solution. Still others think that by limiting population growth, emissions will decrease. They are all partly right and but mostly wrong.

The concept of clean energy is absurd. All energy is clean until it is used and converted into work. Carbon emissions and heat are the unavoidable waste products of that conversion. When the full life-cycle of energy-plus-work is considered, no energy source or technology is substantially cleaner or more energy-efficient than any other.

Technology plays a role in addressing emissions but it is not the solution. There is only thing that really matters, and that is to use less energy. Less energy use will eventually result in reduced emissions, lower GDP and a smaller population. No other approach will work, at least not in time to make a difference for our ecosystem and for climate change.

As I wrote in late May,

“I favor a future society that is based largely on renewable energy. That society will look very different that what we know today. Substituting renewables for fossil fuels is not a solution without greatly curtailing our total energy consumption. That’s what the physics indicates will happen in a renewable future. I suggest that we stop trying to make renewables look like something that are not and cannot be, and just learn to live with them as they are.”

The great irony is that I doubt that the IEA understands the flaws in its net zero plan. The agency is narrowly focused on carbon emissions. It is not taking a system view of the problem. It is—like most of the protagonists on all sides of the climate-change debate—fundamentally energy-blind.

That does not change the fact that decoupling is a mirage and the net effect of net zero will be zero.

 

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Permian Production Will Not Peak Because of Depletion

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Unanticipated Consequences of the Energy Transition

Fossil fuels are not the biggest component of humanity’s negative effect on the planet. They are the principal cause of climate change.

How can both statements be true?

It’s because climate change is not the biggest problem facing the world. It is a symptom of the much larger problem of overshooting earth’s carrying capacity. This means that humans are using natural resources and polluting at rates beyond the planet’s capacity to recover. The predicament that we face includes climate change, pollution and biodiversity loss.

CO2 emissions are just part of this larger problem. A solution begins with an awareness that the future prosperity of human society is critically dependent on the health of the total ecosystem of which we are a part.

Material Footprint

The clearest way to quantify what that means is a measure called the material footprint.

Material footprint is an indicator of the broader effect of human activities on the planet. In a 2015 paper, Wiedmann et al defined material footprint as

“The global allocation of used raw material…[from] the beginning of a production chain (where raw materials are extracted from the natural environment) and its end (where a product or service is consumed).”

The United Nations Environmental Program described material flows as,

“A framework for describing the interaction of a domestic economy with the natural environment and the economy of the rest of the world in terms of flows of materials, waste and emissions.”

The components of material footprint are biomass, fossil fuels, metal ores and non-metallic minerals. Together, these include primary material extraction, physical trade (imports and exports), waste and emissions.

From this perspective, fossil fuels are not the biggest component of society’s material footprint. They account for only 17% of society’s effect on the planet (Figure 1). Non-metallic minerals account for 47%, biomass for 27% and metal ores for 10%.

Figure 1. Fossil fuels are not the biggest component of society’s material footprint. Non-metallic minerals accounted for 47% in 2019. Biomass accounted for 27%, fossil fuels for 17% & metal ores for 10%. Source: Global Material Flows Database & Labyrinth Consulting Services, Inc.

Non-metallic minerals are the materials that society uses including bricks and other building materials, cement, sand, gravel, clay, crushed rock and fertilizer. Biomass consists mostly of food but also includes wood, crop residues, paper, fodder, and animal products. Metal ores include iron, uranium, aluminum, chromium and titanium as well as the principal minerals needed for renewable energy machines like solar panels, wind turbines and batteries. Fossil fuels are chiefly crude oil, condensate, natural gas, coal, peat, oil shale and tar sands.

In Figure 2, I have combined and relabeled fossil fuels, metal ores and biomass in order to investigate the relative material footprint of energy versus materials.

Considered in this way, society’s energy footprint is approximately equal to the footprint of its material needs, and about half of the energy footprint is from biomass. I recognize that this is coarse comparison because some of what is grouped as energy may be materials. Nevertheless, it provides a high-level framework for understanding how different human activities may affect the broader ecosystem

Figure 2. Society’s energy footprint is approximately equal to the footprint of its material needs. About half of the energy footprint is from biomass. Source: Global Material Flows Database & Labyrinth Consulting Services, Inc.

Unanticipated Consequences of an Energy Transition

As society attempts to reduce its carbon footprint, we should be equally mindful of how this may affect its material footprint on the planet. There will be unanticipated consequences that our energy transition initiative has not considered.

That plan chiefly involves substituting fossil energy with mineral/renewable energy. Ignoring the substantial problems with mineral energy (mainly intermittency and lower power density), it is unlikely that the total energy footprint will be much different during and after the transition. Nor is it probable that biomass energy will decrease.

That suggests that an energy transition will have little net effect on society’s material footprint on the planet.

That’s a big problem because climate change is not just about the carbon emissions that human activities produce but how effectively earth’s forests, oceans and atmosphere are able to process those emissions. If society’s material footprint on earth’s natural systems continues to increase, it is unlikely that there will be much if any reduction in net carbon emissions despite efforts to replace fossil with mineral energy.

The only way out of this trap seems to be through a reduction in material consumption. That is not part of the path that world leadership is presently following and that is worth thinking about.

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Climate Change is Not Debatable

Climate change is not debatable and yet the debates continue. The debates are a distraction from making any progress on addressing the problem.

There are in fact three very different climate-change debates going on today: a scientific debate, a world leadership debate, and a public debate.

Most scientists agree that climate change is a real and existential problem (Figure 1). The scientific debate is about how much of a threat climate change is to human life and civilization.

World leadership generally agrees with scientists but believes that there is a technology solution for carbon emissions. The leadership debate is about which technology will reverse or slow CO2 emissions.

The public is more divided about the seriousness of climate change partly because of populist influencers who peddle the narrative that climate change is a hoax. The public generally accepts that climate change is real but does not believe it is the most important problem facing the world. The public debate is whether doing something about climate change is worth the cost.

Figure 1.There are three different climate-change debates. Source: Labyrinth Consulting Services, Inc.

 

The Scientific Paradigm

These categories of debates are, of course, broad generalizations but they help to explain why there has been little progress addressing the problem of a warming planet.

Let me be very clear about one thing: the ruling scientific paradigm today is that climate change is caused by CO2 emissions linked largely to burning fossil fuels.

That is not debatable.

The tiresome populist argument that climate change is a hoax, however, goes on because many people are psychologically unwilling to accept that this is the best explanation for a warming earth.

Global warming is an empirical fact. That is not debatable.

The mean surface temperature of the earth has increased to nearly  1° Celsius more than the 100-year average (Figure 2). It is expected to approach the dangerous level of  1.5° Celsius more than that 100 year average in the next few years.

 

Figure 2. Global average surface temperature. Source: NOAA

Out of more than 88,000 peer-reviewed papers on climate change since 2012, 97% supported the ruling paradigm. Deniers point to a handful of scientists who disagree and say that this “so-called consensus” is wrong; or they cite a few incorrect forecasts about climate change and say that this proves that climate-change is a hoax.

That is wrong and dishonest. The overwhelming agreement among scientists is not debatable. It is what defines the current scientific paradigm.

A paradigm is a theory that seems to explain observed facts better than competing theories. It is a set of universally recognized interpretations of data, methodological processes and concepts by the present scientific community.

Thomas Kuhn was a renowned physicist whose 1962 book The Structure of Scientific Revolutions defined the paradigm in modern scientific work.

“Paradigms gain their status because they are more successful than their competitors in solving a few problems that the group of practitioners has come to recognize as acute.
–Thomas Kuhn

That doesn’t mean that the paradigm is correct for all time. It merely means that it is the explanation that best integrates all available data.

Kuhn stated that a  paradigm is established when a world-view or theory is “embraced by almost all practitioners” and becomes part of the practice of  “normal science.” The ruling paradigm is accepted as a first principle in new published research. It no longer needs to be proven each time it is stated because it is broadly accepted.

This is how science has worked for centuries. There is nothing special about the climate-change paradigm that didn’t apply to plate tectonics, germ theory, quantum mechanics or any new scientific paradigm.

When debate within the competitive and contentious scientific community devolves from a roar to a whimper, a new paradigm is established.

The Populist Argument is Wrong

The main populist objections to the ruling scientific paradigm include:

  • that climate is always changing and is part of a natural process;
  • that there were higher CO2 and temperature levels during the time of dinosaurs and life went on just fine;
  • that some predictions about the timing of climate change were wrong;
  • and that CO2 and warming don’t correlate perfectly.

These shop-worn objections have been around for decades and have been debunked or shown to be without material substance in the larger systemic context.

For example, dinosaurs had a vastly different tolerance to temperature and CO2 than humans. There may have been 20 million dinosaurs on earth at their peak during the Cretaceous period about 66 million years ago. They lived relatively simple lives in small herds or alone.

There are now 8 billion humans living in a complexly connected civilization that relies on global supply chains to move goods and services all around the planet. Comparing the present and near-future for humans to conditions for now-extinct creatures in the deep geological past is simply absurd.

Another example: climate-change deniers can easily find  a few credentialed climate experts who disagree with the ruling paradigm—just like every attorney can find expert witnesses whose testimony supports his client’s plea.

Similarly, it is easy to find a climate expert who made a prediction that didn’t come true. Human history is littered with bad predictions and dissenting experts. Failed predictions and even bad scholarship are sadly found in many areas of society, not only in climate science. But the exceptions do not prove the rule.

Paradigms are explanations. There is no requirement that we like them. Einstein never liked quantum theory but he could not support his belief except to say that, “I, at any rate, am convinced that [God] does not throw dice.”

The climate-change debate, however, is not a competition. There is more than adequate information to suggest that climate change presents some probable risk to human prosperity and to other species. Like it or not, the scientific debate about climate change ended years ago.

Technology Won’t Save Us

Figure 3 is the single most important chart for understanding that the climate debate is about more than just carbon emissions.

It shows the normalized correlation between economic growth (GDP), the human material footprint on earth’s ecosystems, carbon emission (CO2) levels, and human population.

Climate change is not just about the carbon that human activities produce but how effectively earth’s forests, oceans and atmosphere are able to process those emissions. That is 100% correlated with economic growth. Economic growth is 100% correlated with energy consumption. All are directly related to population growth.

The conclusion is clear: carbon emissions and overshoot of planetary boundaries are unlikely to decrease as long as world GDP and population continue to increase. All four factors in Figure 3 are related. Nothing can really be done about reducing carbon emissions without also reducing population, humanity’s ecological footprint, and GDP.

Figure 3. Carbon emissions and overshoot of planetary boundaries are unlikely to decrease as long as world GDP and population continue to increase. Source: World Bank (GDP), World Bank (population), Global Carbon Atlas, Global Material Flows Database & Labyrinth Consulting Services, Inc.

Figure 3 is not debatable. You don’t have to like it or agree. It is historical fact.

The path that world leadership is following is based on technology optimism.

When the International Energy Agency issued its Net Zero by 2050 report in May 2021, U.S. climate envoy John Kerry made these comments.

“I am told by scientists that 50% of the reductions we have to make to get to net zero are going to come from technologies that we don’t yet have. That’s just a reality…You don’t have to give up a quality of life to achieve some of the things that we know we have to achieve. That’s the brilliance of some of the things that we know how to do.”

Figure 3 indicates that Mr. Kerry is totally wrong.

He is wrong because he and world leadership are only focused on carbon emissions. But emissions are not the problem. They are the result of the problem. CO2 emissions are simply the waste produced by 8 billion people consuming energy every day. The problem cannot be solved by addressing the symptom without also addressing the causes.

World leaders and many climate activists have carbon tunnel vision (Figure 4). They do not see that carbon emissions are a systems problem.

Figure 4. Carbon tunnel vision. Source: Jon Konietzko.

In fact, climate change itself is a systems problem. It is a symptom of too many humans, using too many resources, producing too much waste and overshooting earth’s capacity to recover. Humans have exceeded the carrying capacity of the planet.

The original meaning of carrying capacity was the amount of cargo a ship could carry without a risk of sinking. Our ship is Planet Earth and we have overloaded it with people consuming its resources and polluting its land, water and air.

Efforts to reduce carbon emissions have failed and will probably continue to fail. The dashed green line in Figure 5 is the International Energy Agency’s (IEA) 1.5° C pathway to net-zero carbon emissions by 2050. It is what must happen to avoid serious climate-change risks to humans and the planet.

The most likely projection (black line) suggests that the world is seriously off-track in meeting that net zero pathway.  It seems that even the more dangerous 2.0° C pathway may also be exceeded.

Figure 5. Global CO2 emissions will flatten in the most likely case but warming will exceed the 2° C pathway. Source: EIA, IEA, OWID, McKinsey & Labyrinth Consulting Services, Inc.

How is it possible that things look so bad in spite of all the laws, regulations, technology and money devoted to the problem?

It is because all models and projections (including the IPCC scenarios) assume continued population and economic growth.

IEA’s net zero scenario in Figure 4  includes an approximate doubling of world economic growth by 2050 averaging 3.1% from 2020 to 2050. The EIA case assumes 1.7% economic growth for OECD countries and 2.6% for non-OECD countries.

Without a change in population and economic growth, temperatures will enter a danger zone for life on the planet in the next few years.

That is not an alarmist statement. It is common sense. It is the inevitable result of historical data trends.  If the trends don’t change, the outcome is unlikely to change.

There’s really nothing to debate.

 

 

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The Psychology of Climate Change

Climate change should be a relatively straight-forward discussion. Either you believe that warming is because of human activity or not. The arguments pro and con haven’t changed much over recent decades although new data emboldens all sides to insist that they are right.

Why then is climate change such a heated and divisive debate?

Part of the answer lies in polling data. About two-thirds of Americans consider climate change a major threat, support carbon neutrality by 2050, and believe that government should create incentives for more wind and solar power. At the same time, they see it as a lower priority than strengthening the economy and reducing health care costs. In fact, climate change was among the least important problems for Americans in April 2023 (Figure 1).

Figure 1. Climate change was among the least important problems for Americans in April 2023. Source: Gallup and Labyrinth Consulting Services, Inc.

Most people think that climate change is a problem but not serious enough to do much about except to leave it to government to sort out. The same respondents rank government leadership the second biggest problem today after the economy which most of the same people routinely blame on government.

Psychologists might call that an unresolved conflict or even a behavioral disorder.

Many years ago, I was assigned to participate in a 6-week discussion group led by a particularly ineffective leader. I asked the program director to put me in a different group because this fellow made me angry and frustrated. He said, “No one is powerful enough to make you feel any way at all. When you can tell me why you feel that way, I’ll move you to another group.”

I’d never thought about it that way, and it took me several years of self-inquiry to fully understand what he was asking me to consider.

Psychologist Marilyn Price-Mitchell observed about climate change in a 2019 article that,

“As with all great debates, it is often how people feel on the inside that drives their attitudes and behaviors…What’s simmering inside of American psyches may be as important to the climate change debate as the greenhouse gases bubbling from lakes, rivers, and wetlands throughout the world.”

The Fall From Grace is a theme found in many global mythologies. In Genesis, Adam and Eve were expelled from paradise because they failed to follow the natural order that God had explained. They were doomed to wander the earth as strangers in a strange land. Humans had gotten a divorce from both God and Nature.

The last 50 years are the sequel to Genesis. Once again, man has strayed from the natural order and soiled his nest. Humans have polluted the land, rivers and seas, deforested huge swathes of the earth, caused a 70% reduction in animal populations, and put so much waste into the atmosphere that earth’s climate is warming.

Climate change is only a portion of our transgressions. Discount or dismiss it and we still have a huge problem with overshoot or exceeding the carrying capacity of the planet.

Mythological conflict is often expressed in the individual’s interaction with what Freud called the superego—the conscience or the father-mother figure.

“The superego treats the ego like an adult treats a child. The ego is continually trying to deny the criticisms which emanate from its own superego. The ego is trying to prove to the superego that it is grown up by finding others whom it can look down on and treat as a child.”
–Geza Rohheim, Magic and Schizophrenia (1955)

This is a fundamental insight for understanding why the climate-change and biophysical overshoot debates are so intense. They are not really about facts or data. They are profoundly personal and come from deep within the human psyche, something that is largely outside of our everyday awareness.

On some level, most of us know that our activities are bad for the planet, bad for other species, and bad for our own health and well-being. But we’d rather not think about it, or we are too busy with our jobs and families to think about it much. More likely, when we think about it, we just assume that someone or some technology will provide a solution.

There seem to be at least three approaches to coping with the cognitive dissonance from climate change and overshoot (Figure 2)

Figure 2. Climate Change Triangle. Source: Labyrinth Consulting Services, Inc.

Don’t Worry, Be Happy

Some pretend that there is no problem at all. Climate is always changing and is part of a natural process, and the present is no different from the historical or geological past. There were higher CO2 and temperature levels during the time of dinosaurs and life went on just fine. CO2 and warming don’t correlate perfectly and anyway, the earth will be greener and better with more CO2 and warmer temperatures in the future.

The problem is all of those climate alarmists who are making a big fuss about something that probably isn’t worth worrying about at all. University professors write scary papers just to get funding for their research. Liberal politicians want to tax the people to waste money on worthless renewable energy projects.  These people should try being in business and they would understand that fossil fuels are responsible for most of society’s progress over the last century or so. The economy must grow and a renewable economy can’t grow.

The Sky is Falling

Another group thinks that climate change means the imminent end of life and human civilization. Warming will result in sea-level rise that will destroy our coastal cities. Crops will fail, billions will die, and mass migrations will threaten what is left of civil society. We must get off of fossil fuels immediately or very soon. People should become vegetarians and source all food and manufacturing locally. Everything should be recycled as we create a circular economy. We must end growth now.

The problem is right-wing people and politicians who just don’t understand or don’t care about what’s happening. The biggest culprits are the evil fossil fuel companies who knew that this would happen 50 years ago and covered it up so that they could continue to make windfall profits at everyone else’s expense.

Technology Will Save Us

A third group blends elements of the first two. It acknowledges that climate change is a big problem but also agrees that growth is crucial. The answer is technology and human ingenuity.

An immediate expansion of clean nuclear power will solve many of the problems of intermittent renewable energy. Fusion is just around the corner. Electric vehicles are such an obvious part of the solution. After all, solar and wind power are almost too cheap to meter. Hydrogen will become the fuel of the future and replace gasoline, diesel and jet fuel. Maybe we can even beam electric power from satellites in space, and drill ultra-deep wells to tap the infinite supply of geothermal energy in the earth. If none of that works, we can move to Mars.

There are no bad guys for this group except the ignorant pessimists who don’t see things their way.

The Human Predicament

Those descriptions are, of course, caricatures and end members with hybrid nodes at many positions but my point is that society’s basic approaches to climate change are childish (and I include myself in that statement). That is precisely the emotional outcome that we were trying to avoid with our superegos!Co

I do not pretend to know the path forward. I suspect that even the most adamant deniers are psychologically unwilling to face the possibility that there is a climate-change problem. It seems equally likely that the climate alarmists are afraid to accept that they share responsibility for climate change, and may be powerless to do anything except to blame others. The technology advocates are probably in greater denial than the climate-change deniers.

Does the truth lie somewhere in-between the three groups? Possibly but first we must acknowledge that most of our actions and approaches so far on climate change and overshoot are only defense mechanisms. We are really just acting out while trying to convince ourselves we are doing the right thing.

I am not naive about the human condition or human behavior. I don’t expect this post to change anything except perhaps the perspective of some who read it.

We should not realistically expect any of the current approaches to climate change to result in productive outcomes. We must first be honest with ourselves. Then maybe we can move forward but on a different path. Probably not, but maybe.

 

The post The Psychology of Climate Change first appeared on Art Berman.

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OPEC Cuts vs An Incredibly Tight Market: Both Cannot Be True

Last week, Saudi Arabia announced a 1 mmb/d oil output cut bringing total announced OPEC+ cuts to 3.7 mmb/d since last October.

In fact, OPEC+ began permanently managing oil markets at the beginning of 2017. Since then, cumulative cuts averaged 4.24 mmb/d since the start of 2022, or about 4% of global output (Figure 1).

Figure 1. OPEC+ withheld an average of 4.24 mmb/d in 2022-23 vs December 2016. June 2023 withholding estimated at 4.9 mmb/d. Source: EIA STEO & Labyrinth Consulting Services, Inc.

That really puts the standard analyst supply-demand balance metric into question. Demand is weak enough that Saudi Arabia needs to cut 1 mmb/d but OPEC research projects demand growth of 2.5 mmb/d in the second half of 2023 to a record 103 mmb/d. All this with more than 4 mmb/d already being withheld from supply.

Yet analyst Eric Nutall stated recently that,

“The market’s recessionary fear is not allowing oil price today to reflect how tight things really are…Most stats that we look at…Chinese record demand, Indian record demand, JODI reporting record demand…point very, very strongly…[that] in the next few weeks, we should be seeing the largest stock draws in history.”

What about the 4.2 mmb/d that OPEC is currently holding back from the market? I suppose that is either noise or fiction.

The future that Nuttall describes is speculative. It’s also based on supply-demand balance that I have questioned for a long time.

What’s not speculation is that the entire OPEC+ oil market management project is an exercise in futility. Once started, of course, there’s no going back.

Yet somehow the disconnect between 5 years of analyst warnings about tight supply and more than 4 mmb/d of withheld volumes must be addressed. They can’t both be true.

 

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Jude Clemente Is Confused About The Energy Transition

Jude Clemente says he is confused about the energy transition. Not really. It’s just camouflage for his true opinion that it’s a farce.

In a post late last month, he reiterated well-established criticisms of renewable energy, electric vehicles and the urgency of climate change in the first place. For example,

“On the holy climate panacea triad of more wind, solar, and electric cars, I’m so utterly confused. How is it that we can increasingly rely on non-dispatchable (i.e., intermittent, usually unavailable), weather-dependent electricity from wind and solar plants to displace, not just supplement, dispatchable (i.e., baseload, almost always available) coal, gas, and nuclear power?…If wind, solar, and electric cars too are as effective and low-cost as so many keep promising us, there would obviously be no need for government subsidies for broad adoption.”

That is not interesting.

It is interesting that his very unoriginal message was so well-received.

True believers in the fossil energy-climate hoax-human flourishing tribe now sense that the momentum has shifted. Despite their best arguments, every day they see the advance of laws, regulations and public support to do something about climate change. Even the infallible market is increasingly on-board with massive investments in the energy transition.

They are terrified and see those who don’t share their views as a danger to society and to their way of life. It’s both similar and related to the enmity of political parties across the world today. Jude Clemente’s post appears to them as a safe harbor from the furious tempest.

Clemente has a very narrow focus so naturally he is perplexed. Like Alex Epstein, he frames our predicament as a cosmic conflict between the forces of good versus evil energy choices. That is hugely unproductive and yet it resonates with a lot of people. Its appeal may be that it seems to simplify an otherwise bewildering mix of  complex subjects.

Many climate activists also have a narrow focus. For them, the armies of light and darkness are in locked in mortal combat over carbon emissions. They similarly lack the broader systems perspective graphically shown in this figure.

Figure 1. Carbon tunnel vision. Source: Jon Konietzko.

I am not taking sides. Positions and beliefs on all sides of this debate have merit. And that is precisely why so many people—unlike Jude Clemente—are genuinely confused. There don’t seem to be any solutions.

I recently listened to an interview with Gaya Herrington. She holds masters degrees in both econometrics and sustainability studies, and works in the financial sector. In discussing her recent book, Five Insights for Avoiding Global Collapseshe offered these observations about her own experience.

“We’re talking about global systems, so it can feel very overwhelming and if everything is connected, you’re never really done. So working in systems is very overwhelming. And at the same time, it’s such a personal journey. It starts with yourself, and not only that, it has to start with yourself. And I think that’s a very important point to make. And for me, these big global planetary boundaries, to respect those, is to respect your own boundaries. I feel like there’s a connection there.”

She goes on to describe a hypothetical situation in which someone asks what price you would put on your own child. The obvious response is that there is no price. Life is sacred. It is the same for the earth.

Most people only think about the state of the earth in its most superficial aspects.

They recognize that pollution is a big problem and clearly something caused mostly by human activities. Similarly, they are aware that many animal species are endangered because humans are crowding them out of or polluting their habitats.

In fact, the animal population—not the number of species—has decreased by 69% since 1970. Animal population and pollution are not, however, part of most people’s daily experience. A common response to those who mention these problems is that they are “tree huggers.”

For those who only place value on human flourishing, they should at least heed energy expert Vaclav Smil’s observation,

“Without a biosphere in good shape, there is no life on the planet. It’s very simple. That’s all you need to know.”

I suggest that we look up from our phones and stop trying to be right about our favorite topic for just a few minutes. Are we capable of getting beyond our simplistic talking points about energy and climate change long enough to see what is happening to our planet?

Gaya Herrington suggests that the solution to global collapse may not really be about logical arguments, cost-benefit analysis, or good versus evil.

It’s a psychological problem.

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June 2023 Energy Newsletter

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Philosophy vs Science: The Church Tried That Too and Lost, Dr. Bardi

My colleague Ugo Bardi wrote a rebuttal to my recent post in which I explained why the EROI of renewable energy remains lower than that for fossil fuels.

Bardi’s post Is the Energy Return of Renewables Really Higher than that of Fossil Fuels? A Rebuttal to Art Berman’s Criticism presents no data and is, therefore, little more than a philosophic rejection of science. The Catholic Church tried that for several centuries before losing its futile battle.

Bardi reveals his failure to understand the mechanics of EROI (energy returned on energy invested) in this, the core of his rebuttal.

“And here is the point of the discussion: you can measure the energy embedded in a barrel of oil and compare it to the energy embedded in a lithium battery. But the battery will dissipate that energy in the form of electric power at more than 90% efficiency. To obtain the same amount of work from the oil contained in the barrel, you have to go through a series of steps, including transporting, processing, refining, more transporting, and finally burning it inside a thermal engine that, typically, has an efficiency of about 30%. Not all energies are created equal!”

EROI is the ratio of the total energy output divided by the total energy input over the life cycle of an energy source. The efficiency of a lithium battery is not a measure of its EROI because it is not a measure of either its energy output or input but rather its conversion rate. His argument ignores the energy required extract, ship, manufacture and distribute its components.

In the interest of  pedantic generosity, however, I will take Bardi’s statement at face value and show why it is hopelessly wrong even though it is irrelevant to any honest discussion of EROI.

The output of a standard Tesla lithium ion battery is about 13.5 kWh. A standard barrel of oil contains approximately 1,700 kWh of work. If we use Bardi’s 90% efficiency for a battery and 30% efficiency for a barrel of oil, the battery delivers 12.2 kWh and the barrel of oil, 510 kWh. Oil wins.

Bardi is in effect arguing that a battery–a storage device–is a better source of energy than the electricity that it stores. At the same time, he is ignoring the energy cost to generate the electricity and the to build the battery. That is outside of the realm of reason and science.

I am not arguing in favor of oil or fossil fuels. Quite the contrary, as I said in my original post,

“I favor a future society that is based largely on renewable energy. That society will look very different that what we know today. Substituting renewables for fossil fuels is not a solution without greatly curtailing our total energy consumption. That’s what the physics indicates will happen in a renewable future. I suggest that we stop trying to make renewables look like something that are not and cannot be, and just learn to live with them as they are.”

I am arguing in favor of the truth based on the facts that we have today. Those facts indicate that the EROI of renewable energy is lower than of fossil fuels.

That is not a win for fossil fuels but rather a reflection on of how difficult it will be for humans in a renewable energy-based future. Pretending it is otherwise is simply not helpful.

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OPEC+ Ouching Toward Bethlehem: Blog May 28, 2023

William Butler Yeats described the despair that accompanies the unravelling of well-intentioned efforts into something far worse than what had existed beforehand. In his 1919 poem The Second Coming, he wrote,

“Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world…
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?”

It’s debatable whether efforts to manage world oil markets by OPEC+ since 2016 were well-intentioned but they are clearly now unravelling.

Oil minister Abulaziz bin Salman reprised the Saudi default narrative of blaming oil “speculators” for market manipulation when things don’t go according to plan for oil price.

“I keep advising them that they will be ouching — they did ouch in April.”

It’s both funny and ironic because the mission of OPEC and OPEC+ is to manipulate the oil market, and Saudi Arabia is the world’s largest speculator in oil futures.

I enjoyed this comment from Again Capital’s John Kilduff a few days ago:

“It’s now OPEC+ producers experiencing the ‘ouch’.”

He was talking about the possibility that OPEC+ may need to cut supply yet again at its upcoming Joint Ministerial Meeting. That, anyway, is what Russian President Vladimir Putin indicated about ten days ago.

I am not among those who believe that OPEC has outlived its usefulness nor do I agree with those analysts who think that it is now “back in the driver’s seat.” These are equally silly opinions.

It is pointless to look backward and describe all of the tipping points between 2016 and the present. But once OPEC+ started trying to manage oil markets six-and-a-half years ago, it couldn’t stop.

What started as a relatively straight-forward effort to put a floor under oil prices has acquired a life of its own. It’s gotten caught up in the geopolitics of the war in Ukraine and a new world order. It will follow the well-established path of entropy. In other words, the best scenario for OPEC+ is that things don’t get worse in the near-term because in the longer term, they will.

It is presumptuous to think that the world’s largest commodity market can be managed. It’s impossible.

“And what rough OPEC+, its hour come round at last,
Ouches towards Bethlehem to be born?”

 

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Does Renewable Energy Have a Higher EROI Than Fossil Fuels?

There is new momentum behind the idea that renewable energy has a higher energy return on investment (EROI) than fossil fuels.

That contrasts with decades of consensus that the EROI of oil, for example, ranges from 18 to 35 while the range for solar is from 6 to 12.

Nafeez Ahmed wrote in a recent post that

“While the EROI values of wind and solar are “at or above 10”, the average EROI estimate for oil is about 4.2. Murphy et. al’s research concludes that many EROI analyses incorrectly compare fossil fuels with renewables by measuring them at the wrong areas. By consistently measuring them both at their ‘point of use’, they are able to develop a far more consistent approach.”

Similarly, Ugo Bardi wrote a post in January whose title was ” Setting the record straight on the EROI from renewables. It is much better than that of fossil fuels.”

Both Ahmed and Bardi used a 2022 paper, Energy Return on Investment of Major Energy Carriers: Review and Harmonization as their source.

Net Energy and EROI Essentials

Net energy is the difference between the total energy output minus the total energy input over the life cycle of an energy source or technology (Figure 1).

EROI is the ratio of the total energy output divided by the total energy input over the life cycle of an energy source.

That means that the net energy for a 10 megajoule (MJ) energy input and a 20 MJ output is 10 MJ and the EROI is 2 (Figure 1).

Figure 1. Net energy and EROI for a hypothetical energy source or technology. Source: Modified from Hagens (2010).

Table 1 shows a range of energy inputs and outputs and their corresponding EROI and net energy values. The important observation is that EROI is non-linear while net energy is linear.

For example, an EROI of 10 is twice as great as an EROI of 5 but only represents a 10% (90% vs 80%) difference in net energy or the efficiency of the transformation from source into usable energy.

It would take an EROI of about 1.9 to produce a net energy decrease of 50% compared to an EROI of 10. That’s why EROI adds more confusion than value at least for the casual user.

Table 1. Energy input and output, and corresponding EROI and net energy values. Source: Labyrinth Consulting Services, Inc.

Red Flags

I evaluated the 2022 EROI paper by David J. Murphy and colleagues that Ahmed and Bardi cited as the source of their good news about the superior EROI of renewables.

This statement from that paper was a huge red flag for me.

“Even if crude oil were measured to have an EROI of 1000 or more at the point of extraction, the corresponding EROI at the point of use, using global average data for the energy “cost” of the process chain, would still only be a maximum of 8.7.”

This means that the supply-chain energy costs for refining and product distribution create a permanent penalty that prevents oil from reaching an EROI of more than 8.7. It furthermore implies that refining must be a marginally profitable business at best which it is not.

It suggests that all previous EROI work over the last two decades was wrong. The reason it was wrong, according to the paper’s authors, is that previous workers failed to account for the full supply chain of energy investments from extraction to point-of-use. That is simply untrue. The approach has been used at least since 2009 by Hall et al.

By the authors’ own admission, oil is the most important fuel for the global economy. An oil EROI of 4.2, however, would place it below what most researchers consider to be the minimum EROI threshold needed to support society as noted by Euan Mearns.

“It is assumed that ERoEI >5 to 7 is required for modern society to function. This marks the edge of The Net Energy Cliff.”

Below this threshold, so much of the world’s resources would have to be dedicated to supplying energy that there would not be enough left to support the rest of society. Civilization should already be in collapse at an oil EROI of 4.2.

Figure 2. The Net Energy Cliff shows how with declining ERoEI society must commit ever larger amounts of available energy to energy gathering activities. Source: Mearns (2016).

 

In this renewable energy Hail Mary, the authors reveal their fundamental failure to comprehend the significance of their EROI subject:

 

“This means that oil delivers less net energy to society for each unit invested in extraction, refining, and delivery than PV or wind. The transition to electric vehicles, according to these results, will actually increase.”

Society does not function and survive on the per-unit net energy to society but on the full-system net energy delivered to society. This is like saying that I can solve my personal financial problems by delivering newspapers because the per-unit returns are so high. The net income from the paper route is so small, however, that it wouldn’t even help with the monthly escrow payment on my mortgage.

The bottom line is that Murphy et al have not presented the data to support their conclusion that renewables in fact have a higher EROI than oil.

Lack of Transparency

The biggest problem with net energy and EROI research is that it is almost impossible to accurately identify all or even most of the energy inputs. This is compounded by different workers using diverse and sometimes incompatible methods to determine the values needed.

The stated purpose of David Murphy and colleagues’ paper was to clarify the confusion. This is an admirable and much-needed effort. They did not, however, provide the necessary data to support their findings.

There is no a table or graph in the report that allows the reader to see the input and output data and resulting net energy and EROI values for all the relevant energy sources.

There is a table that provides a comparison for fossil (thermal) fuels shown below as Table 2 (Murphy’s Table 2) but it does not show the energy data. Instead these “investments” are listed as a percentage of total for each technology. Among other things, that makes it impossible to validate the EROI calculations. There is no similar table for renewable energy sources.

I have highlighted the percentage values for oil to show the source of what I believe to be the problem.

Nearly 9% of the total post-extraction costs for oil are for refining. Yet most of the energy for refining comes from the crude oil and refined products used in the refinery. It is, in effect, co-generated. That doesn’t negate the energy investment needed to operate the refinery but it is not a cost to society as indicated in the table.

Table 2. Thermal fuel supply chain investment table. Source: Murphy et al (2022) Table 2.

Figure 3 shows how this accounting error affects the EROI calculation. It is modified from Hagens (2010) Figure 5.

The first part of the figure shows 10 megajoules (MJ) of energy coming into the refinery (“Processing) and 1 MJ being added from society. The resulting net energy to produce 10 MJ of gasoline is 8 and the EROI is 5.

In the second part of Figure 3, the identical situation is presented except the 1 MJ of refining investment is “co-generated” from the 10 MJ coming from “Extraction” and not charged to society. The net energy is 8 MJ, the same as in the first case, but the EROI is 9!

Figure 3. Two ways of depicting the EROI of gasoline production from crude oil. Source: Modified from Hagens (2010).

 

That erases much of the good renewable news reported by Ahmed and Bardi.

In Table 3, I have used Murphy et al’s oil transmission and distribution investments (their Table 2) converted from percent to energy units following the format of their Table 1. I divided their 8.9% for refining investment by 3 to account for the co-generation described above (it is probably much lower). The resulting oil EROI is 18. That completely removes the good news from Ahmed’s and Bardi’s proclamations of “mission accomplished” and restores oil EROI to the consensus range for the last two decades.

Table 3. Supply chain investments and calculation of net energy and EROI using refinery “co-generation” of energy. Source: Labyrinth Consulting Services, Inc.

I am troubled by lack of transparency in the Murphy et al paper particularly their failure to show input and output energy data. I suppose it may be found among the 73 references but that is well beyond the ordinary standards of transparent communication. I located a link for supplementary data that only applied to fossil fuels. Unfortunately, critical inputs for this data were from the ecoinvent database which is unavailable without a paid subscription.

I confess that I do not have much confidence that Murphy et al have accounted for the energy cost for resource extraction or renewable unit production because those investments are not shown in their Table 1 or Table 2.

Another source of confusion is Murphy et al’s use of a life-cycle efficiency factor. This multiplies the energy output of renewable sources by a factor of 3.3 to adjust for their longer-term energy payout.

The efficiency factor for fossil fuels is close to 1 so it does not provide any boost. I am not qualified to dispute the use of this life-cycle term except to say that without it, wind and solar would have EROI values much lower than those for fossil energy.

Nor do Murphy et al discuss the transmission and distribution cost of electricity from renewable energy. You have only to compare your next electricity bill rate to the spot price for your region. In the United States, the retail price is 30 to 50% higher. That makes any percentage in Table 2 above (Murphy et al’s Table 2) seem trivial—including the 8.9% refining penalty that doomed oil to an EROI of 4.2! In fact, De Santis et al (2017) note that

“The cost of electrical transmission per delivered MWh can be up to eight times higher than for hydrogen, about eleven times higher than for natural gas, and twenty to fifty times higher than for liquid fuels.

Murphy et al do not address the effect of intermittency on the net energy supply that society needs to function. They tell us that technology will find a way and perhaps it will but that does not change the present upon which their study is based.

Figure 4. Gross consumption for Denmark West plotted against wind and nuclear power (scaled to meet 100% of annual demand)—examples of under- and over-supply periods indicated. Source: Kunz et al (2014).

Is Renewable EROI Higher Than Fossil Fuels? 

There is a long history of energy research that has consistently come to the same conclusion—fossil fuels are hard to beat.

We now know that their use has consequences for the environment that must be addressed. That doesn’t change the physics that explain why humans have long preferred fossil fuels over energy sources like wind and solar, and continue to even today.

The trend toward using science in the service of a cause is dangerous. This latest effort to re-write the history of net energy and EROI troubles me.

We should all ask ourselves the question, “how can I be wrong?” In that sense, I reluctantly welcome the gambit that Murphy et al, Ahmed and Bardi have opened.

At the same time, when something seems too good to be true, it usually is.

I have shown the uncertainties and problematic nuances that can lead to the misuse of EROI. It is a blunt instrument at best. It offers a quick, high-level way to compare different types of energy but little more. Net energy is a far more useful and straight-forward approach.

I favor a future society that is based largely on renewable energy. That society will look very different that what we know today. Substituting renewables for fossil fuels is not a solution without greatly curtailing our total energy consumption. That’s what the physics indicates will happen in a renewable future. I suggest that we stop trying to make renewables look like something that are not and cannot be, and just learn to live with them as they are.

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BLOG: AI IS SO MUCH SCARIER THAN DEEP FAKES

A deep-fake image of an explosion at the U.S. Pentagon triggered a 200-point stock market sell-off yesterday. This is a relatively benign example of the capabilities of artificial intelligence (A.I.).

Yesterday, I finished listening to my friend Nate Hagens’ podcast interview with Daniel Schmachtenberger “Artificial Intelligence and The Superorganism.” It was a provocative and sometimes scary discussion of the potential promise and danger of A.I.

It’s long and all of it is worth hearing but the A.I. part begins almost two hours (01:50:12) into the podcast.

Here, Schmachtenberger distinguishes between the sorts of narrow A.I.—that include deep fakes, machines that play chess, and ChatGPT—and artificial general intelligence (AGI). Google’s AlphaGo is a narrow A.I. game system that was not programed to include any human games. In 3 hours and a trillion runs, it was able to beat all previous A.I. chess programs.

Artificial general intelligence is way more than that. It’s a system that can learn to accomplish any intellectual task that human beings or other animals can perform. It doesn’t exist yet but it’s where A.I. is going.

“So the AI, because all the other tools are made by the kind of human intelligence that makes tools and AI is that kind of human intelligence externalized as a tool itself, it has a capacity to be omni-modal, right? Not dual use, omni-use more than anything else is, and omni-combinatorial.”

This means that AGI could plausibly result in the creation of an intelligent agent that could outcompete humans. This is what A.I. experts like Eliezar Yudkowsky call the singularity.

In a recent editorial in Time, Yudkowsky wrote,

“If somebody builds a too-powerful AI, under present conditions, I expect that every single member of the human species and all biological life on Earth dies shortly thereafter…Shut it all down…We are not ready. We are not on track to be significantly readier in the foreseeable future. If we go ahead on this everyone will die, including children who did not choose this and did not do anything wrong.”

I’ve followed artificial intelligence casually for a while but listening to Schmachtenberger made me to think about it differently. I can convince myself that he and Yudkowsky are perhaps imagining a worst-case scenario that has a very low probability of happening.

At the same time, I am unwilling to dismiss their concerns. There are few people who know more about A.I. than Yudkowsky and Schmachtenberger is an expert at wide-boundary systems analysis. What they are each describing, after all, is a black swan event. We’ve seen a few of those just in the last 15 years.

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Bear Market Math

What part of a bear market don’t oil analysts understand?

WTI price has fallen -$42.38 (-35%) since June 2022 (Figure 1). It has fallen -$11.71 (-14%) since mid-April.

Figure 1. What part of a bear market do oil analysts not understand? WTI price has fallen -$42.38 (-35%) since June 2022. It has fallen -$11.71 (-14%) since mid-April. Source: CME & Labyrinth Consulting Services, Inc.

The analyst consensus seems to be that oil supply is tight and that demand is increasing strongly. Prices should, therefore, increase. The reason this isn’t happening is because the market is wrong.

But as Javier Blas recently explained,

“Purveyors of conventional wisdom would have you believe that the 25% drop in oil prices since late last year was due to softening demand in slowing economies. They — and you — would be wrong. The real problem is too much supply…Put simply, the black market for oil is booming. If one has the appetite – and the stomach – to buy crude from Moscow, Caracas or Tehran, the barrels are there. Better yet, they’re available at a discount.”
–Javier Blas

This week, Bloomberg posted an analysis which concluded that oil supply was the overwhelmingly factor responsible for the $19 decrease in price since November (Figure 2).

“Oil prices have fallen by $19 since November. Our decomposition of the drivers shows supply was responsible for $21 of the decline in crude prices, while demand’s contribution was positive at $2. The source of extra supply is sanctioned countries like Iran, Russia and Venezuela.”

Figure 2. Drivers of oil prices. Source: Bloomberg

 

Fund managers seem to agree. WTI net long positions have decreased -66% since January 2018 and open interest has fallen -40% (Figure 3). Since June 2021, net longs have decreased -62% and open interest -25%.

Figure 3. WTI net long positions have decreased -66% and open interest -40% since 2018. Net longs have fallen -62% and open interest -25% since June 2021. Source: CFTC, EIA & Labyrinth Consulting Services, Inc.

 

Yet, most analysts cling to the belief that markets are tight and market sentiment is the problem.

“The oil market continues to be driven by external developments, rather than fundamentals.”
–ING, May 18 2023

That’s bear-market math.

 

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There is no energy transition, no paradigm shift or green revolution

The energy crisis that resulted from the Russian invasion of Ukraine seems to have passed. At least that’s the mainstream view.

Europe escaped what might have been an electric power and heating catastrophe largely because of an exceptionally mild winter. Javier Blas summarized the aftermath in  recent comments.

“In that new normal, European gas changes hands at €45 ($48) to €50 per megawatt hour. For many policymakers, who witnessed prices spiking to about €350 in August and feared blackouts and freezing homes, it’s a cause of celebration. The crisis is over, so the thinking goes from Brussels to London. Europe won, Vladimir Putin lost. I wish it was that simple.”

Many frame this outcome as a triumph for Europe’s two-decade experiment with renewable energy. In its February 2023 report European Electricity Review 2022, Ember stated that

“The gas crisis created a paradigm shift for the EU’s electricity transition. Historically Europe’s growing renewables replaced coal power, the most emissions-intensive fuel. However, as a result of soaring gas prices in the second half of 2021, new renewables replaced fossil gas instead.”

Most of that statement is untrue.

The ember report focused on electric power generation which is less than a quarter of Europe’s energy consumption. Yet even within that narrow focus, it is untrue that renewables replaced natural gas much less that a paradigm shift took place.

The percent of fossil fuel contribution to European electric power is unchanged since 2018 (Figure 1). Wind & solar rose from 17% to 23% but natural gas increased from 13% to 19%. Coal fell from 21% to 15% but nuclear fell from 28% to 21% & hydro fell from 14 to 11%.

The contribution of what Ember calls renewables–wind, solar, nuclear and hydro–actually decreased from 59% in 2018 to 55% in 2022. There are of course explanations like the low reservoir levels for hydroelectric power and the nuclear outages in France but these kinds of externalities come with the energy territory.

Figure 1. The percent fossil contribution to European electric power is unchanged since 2018. Wind & solar rose from 17% to 23% but natural gas increased from 13% to 19%. Coal fell from 21% to 15% but nuclear fell from 28% to 21% & hydro fell from 14 to 11%. Source: Eurostat & Labyrinth Consulting Services, Inc.

Although gas consumption fell about 13% in 2022 compared to 2021, it’s relative contribution to the electric power energy mix saw the greatest increase as shown in Figure 1 and its accompanying table.

The broader perspective is that electric power only represents 23% of final energy consumption for Europe (Figure 2). That means that wind and solar only account for 5.3% of European final energy consumption, and that all non-fossil sources including wind and solar account for only 12.6%.

Fossil fuels still make up 72% of European energy consumption. The grand green experiment of the last two decades has not done much to free Europe from dependence on fossil energy.

Figure 2. European fossil fuel consumption has decreased from 77% in 2012 to 72% in 2021.Electric power has remained constant at 23% of final energy consumption. Source: Eurostat & Labyrinth Consulting Services, Inc.

Ember is not the only source of self-congratulatory reports on Europe’s survival during the winter of 2022-2023. Yale Environment 360 published a report in March 2023 called Averting Crisis, Europe Learns to Live Without Russian Energy.

Faced with the cutoff of Russian gas and oil, Europe ramped up solar and wind power, got serious about energy conservation, and tweaked policies to speed its green transition. Despite fears of increased emissions this winter, the EU remained on track to meet its climate goals.

That is untrue. I’ve already shown that the ramp up in solar and wind was not the reason that Europe survived the winter. Nor was it something that happened in response to the energy crisis but rather was part of a progressive increase that began more than a decade ago.

More importantly, Europe began increasing LNG imports in September 2021 before the Ukraine crisis began (Figure 3). By the time Russian gas supply began to decrease in earnest, LNG had largely replaced it.

Figure 3. Europe began increasing LNG imports in September 2021 before the Ukraine crisis. By the time Russian gas supply began to decrease, LNG had largely replaced it. Source: Bruegel & Labyrinth Consulting Services, Inc.

It may surprise some to learn that the European Union remains the third largest importer of Russian fossil fuels in May 2023. Europe continues to import Russian natural gas, petroleum liquids, LNG and crude oil (Figure 4).

Figure 4. Top five importers of Russian fossil fuels, May 1 – May 7, 2023. Source: CREA and Labyrinth Consulting Services, Inc.

This is what the Center for Research on Energy and Clean Air (CREA) calls the laundromat. The laundromat consists of countries that continue to import Russian fossil fuels and re-export them or their finished products back to price-cap coalition countries.  Laundromat countries include China, India, Turkey, the UAE and Singapore (Figure 5).

Figure 5. The Laundromat: How the price cap coalition whitewashes Russian oil in third countries. Source: CREA and Labyrinth Consulting Services, Inc.

For as much as I enjoy the laundromat model, it’s not that simple at least for oil. Increased volumes from the U.S. and Norway along with continued exports from Kazakhstan, Iraq, Libya and the U.K. more than compensated for the loss of Russian crude (Figure 6). The laundromat countries are presumably included in “other” although it is difficult to see any increase in that volume since the Ukraine conflict began.

Figure 6. The loss of Russian imports did not decrease the volume of total crude oil available to Europe in 2022 and early 2023. Increased volumes from the U.S. and Norway more than offset lost Russian oil. Source: Eurostat & Labyrinth Consulting Services, Inc.

IEA Executive Director Fatih Birol summarized the global energy situation one year after Russia’s invasion of Ukraine.

“The amount of renewable power capacity added worldwide rose by about a quarter in 2022; global electric car sales leaped by close to 60%; investments in energy efficiency jumped; installations of heat pumps surged, especially in Europe; and nuclear power is making a strong comeback.”

I doubt that any of those statements can be supported with data.

His comments certainly do not apply to Europe where there has has been more than a decade of aggressive renewable investment, where the financial policies and strength are in place, and where the motivation could not have been stronger. If not in Europe, where are Birol’s claims true?

The Cost

Largely unmentioned in the good news reporting about Europe’s renewable energy experiment is its cost. Approximately $1.2 trillion has been invested in renewable energy projects since 2004.

Figure 7 shows that the price of natural gas to Europe in 2022 was more than three times what it paid in 2021, an increase from $120 to $390 billion dollars. That’s just for the gas and does not include the cost for the new import terminals.

Figure 7. Export revenues to key natural gas suppliers to the European Union, 2022-2021 comparison. Source: IEA and Labyrinth Consulting Services, Inc.

The cost for European imports of crude oil and petroleum refined products increased €137 (+72%) (Figure 8). Some of the increase in both oil and natural gas was because their commodity prices were higher in 2022 than in 2021. Much of it, however, was because Europe was willing to pay a premium for energy security.

Figure 8. The cost for European petroleum liquids increased €137 (+72%) in 2022. Source: Eurostat & Labyrinth Consulting Services, Inc.

European government subsidies, bailouts, and backstops to consumers and businesses are estimated to have cost about $276 billion in 2022. In addition, there are the intangible costs of lost revenues.

 

Getting Honest About the Human Predicament

Simon Michaux has analyzed the paths to phasing out fossil fuels.

“Replacing the existing fossil fuel powered system (oil, gas, and coal), using renewable technologies, such as solar panels or wind turbines, will not be possible for the entire global human population. There is simply just not enough time, nor resources to do this by the current target set by the World’smost influential nations…Inevitably, this leads to the conclusion that the existing renewable energy sectors and the EV technology systems are merely steppingstones to something else, rather than the final solution.”

His research has been attacked recently by Nafeez Ahmed and Auke Hoekstra. They challenge Michaux’s assumption that a substantial renewable energy storage buffer is needed to cover weather-related intermittency in a 100% renewable future without natural gas backup systems. They argue that technology advances and recycling will overcome most constraints on limited material resources.*

I mention this dispute between Michaux and his critics because it illustrates the gap between data and the techno-optimism of renewable energy true-believers. I favor a future based on renewables but am confident that they cannot support our current civilization’s growth expectations. I am prepared to accept and deal with the outcome of that future vision but I cannot imagine that most people will agree.

I believe that energy substitution is a doomsday stratagem that condemns civilization to its status quo path of growth & biophysical destruction.

No amount of non-fossil energy will make a difference unless we lower total energy consumption & accept its consequence of no growth.

Climate change is a big problem but it is a subset of the larger problem of overshoot. We have exceeded the carrying capacity of the planet. Continued economic and material growth based on renewable energy does not begin to resolve that fundamental reality.

Ahmed and Hoekstra typify the naive view that somehow, someone will figure all of this out. Meanwhile we should just keep pushing forward with renewable energy despite its failure to make any material difference when it was needed over the last year in Europe. They further make sport of shooting the messenger that warns them that facts do not support their plans. I wonder if they’ve seen Don’t Look Up?

What is clear a year after the Ukraine invasion is that renewables are a relatively small add-on to Europe’s energy supply. There is no energy transition. There is no paradigm shift or green revolution.

Europe survived the winter of 2022-2023 by obtaining enough fossil energy to make up for lost Russian supply. That’s not a criticism of renewable energy. It’s a fact that we must acknowledge.

 

* It is worth mentioning that neither Ahmed nor Hoekstra have training or experience in science or energy while Michaux holds degrees in geology and physics with emphasis on metallurgy, mining and engineering.

 

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BANKING CRISIS: OIL MARKET OVER-REACTION OR RESTRAINT?

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COMPARATIVE INVENTORY & GAS STORAGE REPORT APRIL 27, 2023 (2023-17 FINAL)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT APRIL 26, 2023 (2023-17 FINAL)

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