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Saturday, December 10, 2011
Economics/Business ... Politics ...

I like charts. So I’d like to share a good one that I saw recently regarding world crude oil output. It was part of an interesting and somewhat troubling article on Mr. Gregor’s web site about energy production and standards of living. Here’s my update of his chart, which adds oil prices for comparison purposes (Brent futures in $ per barrel as the green line, use right hand scale on chart).

Mr. Gregor’s bottom line is that energy is the key input — and the key limitation — to how well industrial economies do. Therefore, its ups and downs have observable impacts on the overall wealth and quality of life in these economies. And the USA is a sitting-duck economy as far as energy is concerned. The only thing that has absorbed some of the shock, both here and in Europe, has been the massive amount of government borrowing that has transpired. But that game seems to be just about over. The sovereign debt chickens are coming home to roost in Greece, Italy, Spain, Ireland . . . and are not far out from the American shores.

For better or worse, the industrial nations still depend upon oil. There are alternatives including natural gas, nuclear, coal, wind, solar, and other ‘green energy’ sources. But they are all limited by technological, economic and environmental factors. For the next 5 to 10 years, the only alternate energy source that could significantly expand its role and take up some of the burden on oil without spiking greenhouse gas levels is natural gas. Beyond 10 years, perhaps nuclear energy might get its act together and green energy sources might finally become efficient and effective power generation sources.

But for at least the next decade, America, Japan, Europe, India and China will continue to depend primarily on oil to meet their existing economic demands along with their desire for growth. Mr. Gregor gives a good review of why America and many other nations need growth. In a nutshell, we need economic growth because we’re in debt above and beyond our eyeballs. We borrowed too much money on the assumption that our economy would continue to grow. The only way we can avoid bankruptcy and still provide a comfortable life for the majority of our citizens is to keep on growing, at a rate of at least 3% per year. As to India, China and the other developing nations, they need growth to continue bringing their populations out of the Middle Ages.

And unfortunately, oil production doesn’t seem to be growing at all anymore. As you can see, Mr. Gregor’s chart shows the following: From 2002 to 2005, oil production per day increased 9.7% (about 3% per year). From 2005 thru 2011 (projected), the production rate has bounced around; however, the trend over the past 6 years is basically flat-line.

As to oil prices, they started going up in 2003 and increased faster and faster thru 2008. Price increases were probably slowed at first by increasing oil production thru 2005, then buffered for another year or so by draw-down of reserves. But those reserves were low by 2007, and thus we see that big spike-up in oil prices in 2008. They then crash in 2009 with the big recession (when world gdp contracted by 2%), but immediately started clawing their way up again, quite rapidly. The latest world gdp projections for 2011 are 3.9%, and you can see what that is doing to prices given the mostly static oil output.

So, unless oil output ramps up significantly in 2012 and keeps on going up over the decade, oil prices are going to increase quite a bit, placing a huge strain on the industrial economies, especially on the mature economies and those supporting big debt burdens. Europe is now facing that crisis, and America is certainly next in line.

About the only thing I see that can get us thru the next 7 or 8 years is the big expansion in natural gas production, which has stabilized and even driven down energy costs from using gas. If this holds up, you will see more and more uses made of natural gas, including power generating plants and trains, trucks and buses; maybe even autos, at some point. Buying a car that runs on compressed natural gas seems crazy now, but might make a lot more sense when gasoline hits $10 a gallon.

But of course, natural gas has become a prime target for environmentalists because of the problems with “fracking”, the newest way of recovering gas from shale formations that were once unusable. I’ve followed the arguments for and against how the big energy companies are using hydro-fracturing gas well techniques, and whether these poison water supplies and otherwise pollute the land.

Not surprisingly, I see fault on the part of both industry and the activists. The environmentalists and their sympathizers in big media (including the increasingly partisan New York Times) are screaming a bit too loudly about fracking. They make it sound like a huge disaster in progress, not considering that fracking has been going on for at least 4 years now and a lot of places are not being despoiled by all the new gas wells. HOWEVER, the energy industry is clearly not being candid either, and is trying to deny that fracking has had negative consequences in some places (including the recent find in Wyoming that toxic fracking chemicals have reached groundwater supplies near one well site, something the industry said could not happen).

The bottom line, as I see it, is that we need the gas. Really bad things will happen to the USA if we stop all fracking. But the energy companies and state and federal government agencies need to spend what is needed to keep fracking pollution as minimal as possible; and when it happens, identify it as quickly as possible and protect or indemnify all potential victims. Even if that increases natural gas prices by 15 or 20 percent, the gas will still help to hold the US economy together in the face of $200 per barrel oil.

The environmentalists, politicians, big media, government regulators, and corporate executives involved in natural gas had better stop the current blame game and the “me first”, get-away-with-whatever-you-can plan of attack. We desperately need a new script here so as to keep the whole economy from tanking; a script of patriotic cooperation and reasonableness. Actually, that’s an old script, something akin to what got the USA thru World War 2 and the Cold War during the 1950s. Too bad that we’ve forgotten how that worked!!

◊   posted by Jim G @ 10:48 pm      
 
 


  1. Jim, Sorry, but I am not one who can get all worked up about “growing” the economy. (To digress a bit: I notice that “grow” has now become a transitive verb when previously it was always intransitive. Thus the language changes. But I suppose that observation is lost on a lot of people who wouldn’t know an object in a sentence from the subject. But I digress.) And I most especially cannot get myself worked up about oil vs. gas. No reflection on your very learned piece above, more a reflection on where my thinking has been going lately.

    For one thing, I find myself looking around at cars today–they really have changed. All of them are smaller, somehow more “boxy” looking. Not sure what that does to save gas, but it must have some effect or they would not be making them like that, is the way I see it. Another thing I’ve noticed is that the big “hoopla” about using “green” light bulbs has settled way down. First of all, I find them definitely not more productive in an outside situation. It seems cold weather will kill one of those fluorescent bulbs in a heartbeat. Second, the talka about how long they last: Not true. They seem to die as fast or faster than the old bulbs. So much for saving on energy there.

    It also seems to me to be totally unrealistic and only makes sense when one is at the beginning of something–either starting a new economy, business, or finding a totally new source of energy to think that something will continue to “grow”. Past a certain point the “growing” has its limits. Or perhaps it is just me and my common sense who does not see the importance of “growing” the economy.

    Then too, perhaps I’ve been reading too many websites where people have gone back to farms or ranches–that’s right, individual family farms/ranches, small ones. There are the many individuals making money (or at least supplementing their income) by making things at home and selling them thru the Internet–world wide selling. I’m amazed at how many people are finding living a farm life comforting, quieting of the spirit, and almost spiritual–despite the intensive hard labor involved.

    I find myself wondering if perhaps Capitalism in the U.S. is changing, slowly (maybe very slowly) but definitely going from big corporate business (which has so dismally failed the “little guy”) to the small business talked about a lot but hardly truly honored by either the GOP or the Dems. I find myself wondering if our economy may be returning to the type we had before the Industrial Revolution, which took all the work out of the hands of individuals in their own homes and made everything into mass production. Could our economy be slowly, quite slowly, but definitely be changing? I find myself wondering about that. If so, then the demand for such things as gas/oil will change too. Yes, it will still be there–but perhaps in a more realistic mode.

    I see this type of thing spreading. Or perhaps it’s been around for quite a while and is just becoming clear to me thru the Internet and websites. But I find myself wondering.

    I also find myself wondering why, if the oil/gas, and electricity for that matter, industries are looking for growth why they are not *first* looking to maintain their infrastructure. Seems odd to me. Perhaps there’s something I don’t quite understand about the situation. But secretly in my heart I wonder whether just a little bit of what I find odd may not be right on the mark–or maybe at least close to the mark.

    Then too, to get a little personal here, I just cannot find myself getting all worked up about 10 years from now. I think that’s best left to the young people. In my young days I always looked to the “future”, so I can see the need for young people to do just that. And to a certain extent I still do. But I’ve found so many things can happen that upset one’s well-thought-out plans for the future that basically worrying about the future is useless.

    So, I must say you have a learned piece on the situation concerning oil/gas. Yet, I find myself thinking in another direction. No reflection on you; just my own idiosyncratic ways. MCS

    Comment by Mary S. — December 11, 2011 @ 3:52 pm

  2. Mary,

    I think the whole growth thing is a rat-race myself. HOWEVER, our nation has already borrowed heavily against assumed future growth. If that growth does NOT take place, the kids of today are not going to be happy campers when they grow up and try to find jobs and pay their taxes and have a decent life. We have already mortgaged their future.

    Comment by Jim G — December 11, 2011 @ 7:34 pm

  3. Jim, True. And what does one do when one has gotten in over one’s head in debt and/or assumed a huge debt? One has two options: One can simply avoid the issue and “go bankrupt” (so to say in this case), simply “not pay” or one can work at paying the debt, tho it may take years to pay off.

    I do tend to think that there is too huge a number of people in the country who want to simply avoid, not take responsibility for the situation we have gotten ourselves into.

    I guess in my life I’ve been in both situations: I’ve worked (in one case) a second job for 12 years to pay off a debt incurred by someone for whom I accepted responsibility, worked until the debt was paid. Then at this point in my life, perhaps I am willing to walk away and put the problem into another generation’s hands.

    Both I think is what the nation itself will have to do–some group (possibly one who will assume responsibility for what others have done) will have to assume the debt incurred and work until the nation is back on its feet; other groups may be able to “take a pass” on it all for whatever (hopefully) legitimate reason. MCS

    P.S. An interesting side note: I find myself wondering if somehwere along the line the whole failure of the economy that seems to be running amuck in the world will have some unexpected results. Namely, I heard a comment that I *think* I understood correctly: In Europe what would happen is one better off nation assumed the debt of a “not-better-off” nation? Might there be a merging of the 2 nations? Might this economic problem ultimately change the face of the nations of the world as we know them now? Just something to think about.

    Comment by Mary S. — December 12, 2011 @ 7:56 pm

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