Sunday, February 01, 2015

Commodities crash: Bad news for the world economy, but is anyone listening?

Reading the general run of financial headlines might lead one to believe that price declines in those commodities which are highly sensitive to economic conditions such as iron ore, copper, oil, natural gas, coal, and lumber are good on their face.

Obviously, the declines aren't good for those who sell these commodities. But, those of us who buy these commodities in the form of cars, houses, utility bills and other products and services ought to be helping the world economy as we buy more stuff with the freed up income.

As true as that may be, these commodity price declines also signal something else: exceptional weakness in the world economy. It is no secret that economic growth in Europe has been stalled for some time and is now receding. The European Union's confrontation with Russia over the Ukraine conflict and the resulting tit-for-tat economic sanctions levied by both sides are only worsening the economic climate.

Russia has been hit by the double whammy of oil price declines and sanctions which are probably sending the country into recession. And, now the new anti-austerity government in Greece seems to be pushing Europe headlong into another Euro crisis as worries about Greek debt default spread.

Chinese economic growth appears to be faltering. And, that seems to be one of the direct causes of the broad-based commodities price decline. A fast growing China has previously created enormous demand for basic commodities needed to build out its infrastructure--commodities such as copper, iron ore and the petroleum products needed to run all the vehicles and machines essential to that build-out. Chinese demand for basic commodities has also increased as China's expanding wealth has allowed many more people there to own private automobiles and to enjoy other fruits of a spreading consumer society.

Economic distress for China seems to come when its hypercaffeinated annual growth rate falls below 7 percent where it seems to be heading now. Official Chinese statistics have long been suspect, so growth may already be below 7 percent. Lower growth makes it difficult for the country to provide work for all those who are leaving the countryside and streaming into the cities as China industrializes.

Commodity-exporting nations such as Canada, Brazil and Australia have taken a big hit on declining Chinese and world demand. But, their bourses seem surprisingly buoyant given the extent of the damage.

The commodity price declines aren't just confined to the industrial and energy commodities mentioned above. Food commodities have been swooning as well recently. Of course, food prices swing based on farm yields which have no necessary relation to the economy at a particular time. What is especially telling about the decline in the prices of foodstuffs is how broad-based it is.

Price declines affected wheat, corn, soybeans, and oats in part due to record harvests. Prices for cocoa declined due to rising harvests and falling demand. But, not every food commodity is experiencing increased harvests. Sugar production has actually declined in the last growing cycle. Yet, sugar prices fell. At the margin, it seems, people are buying less of what are essentially discretionary food commodities such as cocoa and sugar. Does that seem right if consumer buying power is being buoyed by cheaper industrial and energy commodities?

Stock and bond markets across the world are being levitated by central banks which have telegraphed to investors that the banks will react to practically any weakness in stocks or bonds. Of course, central banks don't much concern themselves with the prices of commodities because they cannot control them directly in the way they manipulate money and credit. That's why commodity prices right now are a much better barometer of the global economy than the world's stock markets.

One could say that the stock markets of the world disagree with the global commodity markets about the direction of the world economy. One could also say that the world's bond markets agree with the commodity markets. Low bond yields typically mean that investors expect inflation and economic growth to be low or even negative. High inflation and/or economic growth tend to cause investors to demand higher yields as credit availability tightens and as concern about inflation eroding bond returns rises.

It is especially telling that in the United States, where the U.S. Federal Reserve Bank ceased its government bond buying program last year (known as quantitative easing), that long-term government bonds returned almost 39 percent, much better than the U.S. stock market which registered a 12 percent gain in the S&P 500 index. With waning support from the U.S. central bank, government bonds were supposed to decline (and yields go up). Just the opposite happened--big time!

And as 2015 began, the consensus was that U.S. (and Canadian) interest rates would rise and thus bond prices would decline. Instead, long-dated U.S. governments--which are very sensitive to interest rate changes--spurted upward another 12 percent in January alone as yields plunged to record lows. This was in perfect concert with the continuing commodity rout suggesting that investors in these markets expect low or no economic growth in the year ahead.

Practically the entire investor class across the world believes that central banks now guarantee stock prices, and that the stock market therefore is a sure thing. Commodities and bonds, however, are telling a contrarian story. The obvious questions are: If central banks are omnipotent, then why didn't they prevent stock market crashes in 2001 and 2008? If it's different this time, what exactly will central banks do to prevent another crash? Can they really effectively lower interest rates which are already at zero in much of the world (and below zero in a few instances)? If central bank policy is so powerful, why haven't six years of the lowest interest rates in memory--and in the case of Great Britain since the beginning of central banking there in 1694--resulted in booming growth across the world?

Last week analyst Doug Noland of Credit Bubble Bulletin fame, summarized the situation this way:

To this point, mounting risks – financial, economic, geopolitical and the like – have been viewed as guaranteeing only greater injections of central bank liquidity.

The assumption has been that if markets falter, central bank liquidity can and will always hurl them higher than before. It seems there is no crisis too big that ever greater liquidity injections cannot solve it. That assumption is already being tested this year, and there are likely to be many more tests coming.

The rather precipitous, alarming and lockstep trends in bond yields and commodity prices in the last year suggest that we are likely to get some clarifying answers in 2015 to the questions listed above.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, January 25, 2015

The most important thing to understand about the coming oil production cutbacks

What the current oil price slump means for world oil supply is starting to emerge. "Layoffs," "cutbacks," "delays," and "cancellations" are words one sees in headlines concerning the oil industry every day. That can only mean one thing in the long run: less supply later on than would otherwise have been the case.

But perhaps the most important thing you need to understand about the coming oil production cutbacks is where they are going to come from, namely Canada and the United States.

Why is this important? For one very simple reason. Without growth in production from these two countries, world oil production (crude oil plus lease condensate which is the definition of oil) from the first quarter of 2005 through the third quarter of 2014 would have declined 513,000 barrels per day. That's right, declined. Including Canada and the United States, oil production rose just under 4 million barrels per day.

That means substantial cutbacks in the development of new oil production in Canada and the United States could lead to flat or falling worldwide oil production.

But, why will any oil production cutbacks come primarily from Canada and the United States? For another very simple reason. Post-2005 oil production growth in these countries came from high-cost deposits in Canada's tar sands and in America's tight oil plays. New production from these high-cost resources simply isn't profitable to develop in most locations at current prices.

Of course, there are various figures floating around about what price level will allow new production to proceed profitably in these deposits. Some of those figures closely match current oil prices. But, we should look at what the oil companies are doing, not what they are saying. And, what they are doing is cutting back and cutting back drastically. Recent U.S. rig counts dropped the most since 1991, and rigs are being withdrawn from the very areas that were responsible for the tight oil boom.

Earlier in January Canada's largest oil company and a major oil producer in the tar sands, Suncor Energy Inc., announced layoffs, a cut in its capital budget and delays in new projects. Others are doing the same.

If the low prices continue, even more of the previously anticipated new production from these deposits will be delayed while production continues to shrink in the rest of the world. The twin North American engines for growth in the world's oil supply would stall.

If the world economy goes into a long-term slowdown or recession, then oil demand will ease further. That would mean lower prices would stick around for a while. But eventually, when growth accelerates, the pressure on constrained supplies may become acute and prices could spike.

By then, much of the workforce and machinery needed to increase production will be idle. But, probably more important, lenders and investors will be reluctant to risk money on tight oil and tar sands projects that only brought them grief the last time around. In all likelihood lack of capital will be the primary hurdle for Canadian and American operators when they attempt once again to ramp up production.

Even if oil prices recover soon to levels that would normally reassure lenders and investors, the growth in new production of U.S. tight oil and Canadian tar sands oil may only return to the hypercaffeinated rates of last summer several years from now after the memory of the recent financial carnage has faded.

Each day that oil prices stay low heightens the risk that the world will soon experience flat or falling worldwide oil production--something the oil supply optimists said simply couldn't happen with these new oil resources now available to us.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, January 18, 2015

U.S. Department of Energy: Our forecasts aren't really forecasts (or are they?)

Put this in the category of things that can't be true, but that are nevertheless affirmed with a straight face: The U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, does not issue forecasts, at least not long run forecasts.

So says Howard Gruenspecht, deputy administrator of the EIA, in a letter to Nature, the respected science journal. Gruenspecht was responding to recent coverage of an alleged EIA forecast which paints a rosy picture of U.S. domestic oil and natural gas production through 2040, a view challenged by the article in question.

Here is the bureaucratese from the letter: "Contrary to the presentation in the Nature article, EIA does not characterize any of its long run projection scenarios as a forecast." Long run projection scenarios....huh. What could those actually be if not forecasts? And, why is the deputy administrator making such a big deal of this? We'll come back to the second question later.

There has been little notice concerning the flap over coverage of the EIA's recent nonforecast and the divergence of that set of "projections" from another much more pessimistic forecast issued by the Bureau of Economic Geology at the University of Texas at Austin. To cut to the chase, Nature stands by its story; and, I see no reason why it shouldn't.

Perhaps the most important piece of information to come out of this kerfuffle is the insistence by the EIA that it doesn't issue forecasts. Imagine my surprise! I have been perusing the EIA's statistics on an almost weekly basis for years, and I have occasionally offered critiques of what I was sure were forecasts--lengthy complicated documents with color graphics and tables and elaborate justifications for energy production numbers far into the future. What's more, everyone else called these documents forecasts, too.

How could I have made such a mistake? As it turns out, I didn't. The words "forecast," "forecasts" and "forecasting" appear 49 times by my count in the EIA's most recent nonforecast, its Annual Energy Outlook 2014 with projections to 2040. Those instances include this laudable gem: "By law, EIA’s data, analyses, and forecasts are independent of approval by any other officer or employee of the United States Government." One of the most frequent occurrences is as part of the web address of the report: www.eia.gov/forecasts/aeo. Yes, the "aeo" in the address refers to "Annual Energy Outlook." Click on the link and see the nonforecast forecast for yourself.

Now, why am I making such a big deal of this? And, why is Howard Gruenspecht, the EIA's deputy administrator, making such a big deal of this?

I'm making a big deal of this because practically the entire world of policymakers, of business and governmental leaders, takes the EIA's nonforecasts very seriously. These leaders make critical policy and business decisions based on the "projections" in the nonforecasts. The leaders often use the agency's so-called reference case as if it were a statement of fact verified by specially-trained EIA time travelers who visit the future at the end dates for the EIA's projections and then return to present-day Washington, D.C. with numbers for the agency's forecasts.

For the EIA to deny that its projections are forecasts is sheer nonsense, especially when the agency categorizes them on the web as forecasts. For the agency to pretend that others do not see its projections as forecasts is utterly disingenuous. The agency's work is routinely used by departments across the federal government as a justification for various policy actions.

What that means is that if the EIA is wrong in its forecasts, then a lot of government and business decisions will be wrong. As it turns out, the EIA has been wrong so often in the past--and not by a little--that it now routinely reviews its forecasts in an effort to improve them. I applaud the agency for this effort. And, I suppose one could say that those who use EIA forecasts as a basis for their decision-making ought to do a little research on the agency's track record. If ever there was a field in which to invoke the phrase "caveat emptor" or "buyer beware," the realm of forecasting is such a place.

Art Berman, a petroleum geologist and consultant, points out one very important emerging policy based on the EIA's rosy forecast for U.S. shale natural gas production. The U.S. Environmental Protection Agency is, in part, basing its greenhouse gas emissions policies--which are leading to the retirement of many coal-fired electric generating plants--on the EIA's projection of growing domestic natural gas production through 2040. That gas will presumably fuel less climate-damaging natural gas-fired generating plants that will replace the retired coal-fired ones. But what if the assumption of growing gas supplies through 2040 is wrong?

Whether or not you think it's a good idea to shut down coal-fired power plants, most people still believe that the power currently supplied by those plants will be available in the future at reasonable prices. If the EIA is wrong, that benign scenario may not unfold.

And, of course, there's more. The Federal Energy Regulatory Commission is busy approving liquefied natural gas (LNG) export terminals, believing that America will be facing a growing surplus of natural gas, all based on--you guessed it--the EIA's most recent forecasts.

The effect of a forecast that is overly optimistic in this case is two-fold. LNG export terminals may be built that will lose money for investors. That will be their tough luck. They should do their homework before investing. But, some export terminals may succeed because they lock in 20-year or 30-year supply contracts with importers, for example, China and Japan. That means that at least some U.S.-produced natural gas would be shipped overseas, regardless of whether the United States has sufficient natural gas for its own needs. (The worst case scenario has the United States IMPORTING expensive LNG to offset LNG contractually obligated for EXPORT overseas.)

The losers in such scenarios will be natural gas consumers in the United States--businesses that use natural gas as feedstock for chemicals and for process heat and homeowners who heat their homes with gas. Both groups will have to pay prices closer to the much higher world price as they compete with overseas importers for the same domestic gas supply.

And, those who contracted to take the gas--typically under cost plus arrangements--will end up with natural gas that may be much more expensive than they could have gotten elsewhere should America fail to produce a significant surplus that keeps its domestic natural gas price low. In short, there may not be enough to go around, at least not at the EIA's projected prices, below $5 per MMBtu through 2024 and under $6 through 2029.

Now, the EIA does put a sort of warning at the beginning of its projections/forecasts. But a much more thoroughgoing disclaimer about production of oil and natural gas from deep shale deposits--deposits that have been driving practically all the growth in U.S. production--is buried in the agency's "Oil and Gas Supply Module," a section of a larger document on methodology. Here's the rather dense language:

Estimates of technically recoverable tight/shale crude oil and natural gas resources are particularly uncertain and change over time as new information is gained through drilling, production, and technology experimentation. Over the last decade, as more tight/shale formations have gone into production, the estimate of technically recoverable tight oil and shale gas resources has increased. However, these increases in technically recoverable resources embody many assumptions that might not prove to be true over the long term and over the entire tight/shale formation. For example, these resource estimates assume that crude oil and natural gas production rates achieved in a limited portion of the formation are representative of the entire formation, even though neighboring well production rates can vary by as much as a factor of three within the same play. Moreover, the tight/shale formation can vary significantly across the petroleum basin with respect to depth, thickness, porosity, carbon content, pore pressure, clay content, thermal maturity, and water content. Additionally, technological improvements and innovations may allow development of crude oil and natural gas resources that have not been identified yet, and thus are not included in the Reference case.

Many of the issues cited above have been highlighted by skeptics of the shale boom, and the evidence to date suggests that all of us should be skeptical of both government and industry pronouncements of plenty. If such language were included at the beginning of an EIA projection/forecast, it might confuse the uninitiated. But, it might also alarm them. They might think they need to do a lot more research and thinking before leaping headlong into projects that require everything to work out perfectly in America's natural gas fields.

Now, back to the deputy administrator of the EIA. Gruenspecht might be saying that users of the EIA's forecasts should take them with a grain of salt. With that sentiment, I strongly agree. All forecasts are problematic, and their accuracy deteriorates rapidly the longer out into the future they go. But, long-term forecasts are, in truth, virtually worthless unless they are used merely as a way to characterize future risks rather than banish them. We should be focusing not on the median projection but on the RANGE. The range will tell us much more about the nature of the risks we face, but only if the forecast has been honestly and diligently prepared.

Gruenspecht might also be acknowledging what he cannot actually say. Forecasts or projections or whatever you want to call them are inherently political. They are made with an eye to pleasing whoever pays for them, in this case, the U.S. Congress.

It would be very difficult for the EIA to speak plainly and tell Congress--now filled with representatives who've been thoroughly propagandized by the U.S. oil and gas industry and, in some cases, heavily subsidized in their campaigns both directly and indirectly by the industry--that the shale boom isn't all that it's been advertised to be and, that large uncertainties suggest that the country should not place all of its eggs in the oil and natural gas basket.

And, while the EIA officially eschews policy pronouncements, the agency's top administrator, Adam Sieminski, said the following about the oil and gas industry in a briefing last year: "We want to be able to tell, in a sense, the industry story. This is a huge success story in many ways for the companies and the nation, and having that kind of lag in such a rapidly moving area just simply isn’t allowing that full story to be told." The quote was included in a Hearst News Service story for the Houston Chronicle about the lag time in the reporting of domestic oil and natural gas production data to the EIA.

Sieminski's statement is pretty close to policy advice, and it accurately reflects the tenor of the EIA's forecasts and their implications for policy. With the EIA's bias on display, now more than ever it's time to live by the warning "caveat emptor."

Unlike a product that can be replaced by a manufacturer should it prove defective, the EIA's forecasts come with no warranty. Any damage inflicted by policy, business and personal mistakes made following these forecasts can't be undone. My EIA time travelers are, of course, merely mythical and won't be able go back in time to tell everyone to revise their decisions.

Thus, the admitted uncertainties in the EIA's forecasts, the agency's forecasting record and what we know about the unreliability of long-term forecasts in general, all suggest that we exercise much more caution and much less blind faith. It's a sentiment I'm guessing many people at the agency might secretly agree with--which makes it all the more puzzling when officials there become incensed at those who actually do take their nonforecast forecasts with a grain of salt as did the author of the offending piece in Nature.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, January 11, 2015

The central contradiction in the modern outlook: 'Planet of the Apes' vs '2001: A Space Odyssey'

When talking about the perils of climate change or resource depletion, soil degradation or fisheries collapse, water pollution or nuclear waste--how annoying it is to have one listener respond dismissively, "They'll figure something out. They always have."

It's a nonsense rejoinder and yet, it often gains the assent of many--as if this assertion were a self-evident truth that only an enemy of progress would question. And, that's where we'll start examining the central contradiction in the modern outlook--with a statement that is offered as if it were a scientific fact, when, in truth, it is nothing more than a piece of dogma enunciated by the religion we call modernism.

At first glance, the statement seems backward-looking because it asserts that we humans have always averted catastrophe through our ingenuity. But, of course, this is complete hogwash. History is replete with civilizations that have risen and then fallen, crumbling for myriad reasons eerily similar to ones said to threaten our own: climate change, resource depletion, soil degradation, water pollution, plagues, war, and political disintegration. The listener's statement above can't really be backward-looking for it would fall to pieces with only a cursory review of history.

And so, this means that it must actually be forward-looking. It assumes that the future cannot fail even though the past testifies to almost certain decline for our civilization at some point. What is the basis for this forward-looking optimism concerning a future which we cannot know?

Let us examine the issue through the medium of film using two films that illustrate perfectly the contradiction I mention above. First, there is "Planet of the Apes." It is a truism in science that all species continue to evolve. But, they are not evolving toward some final state of perfection. Rather, random mutations confer traits on the Earth's various species, some of which traits aid survival and propagation and some of which do not. The next dominant species on Earth could just as well be dolphins.

But for the purposes of this piece we'll go along with the notion that in the future apes will have become intelligent and dominant on Earth. In "Planet of the Apes" these evolved apes talk and use tools and, yes, they use weapons. In this notion there is nothing particularly unscientific except perhaps the impossibility of unchanged ape vocal cords adequate to human speech. But even an ape's vocal cords might evolve over time to become capable of human speech as they did once before if we take the fossil record seriously.

Modern science posits only change and evolution. It does not assume special exemptions for humans, and it acknowledges that the life of the human species on planet Earth will be here and gone in the blink of an eye when considered on the geologic timescale. The average lifespan of mammalian species is thought to be about 1 million years. The age of the Earth is 4.5 billion years, some 4,500 times that span. Modern humans have been around approximately 200,000 years, so we are a young species. On the other hand, 1 million years is an average. Extinctions have taken place on both sides of that number.

The arrival of another intelligent species at some point in Earth's remaining period of habitability (1.75 to 3 billion years according to one study) seems plausible even if it is unlikely. "Planet of the Apes" is decidedly a film about evolution--a process which has no particular goal in a universe which, scientifically speaking, has no particular destiny--except perhaps an unglamorous and lifeless heat death, a possibility about which there continues to be a robust debate. Even physicists aren't sure where we are headed.

"2001: A Space Odyssey" imagines humans in quite a different light, one that conforms to modern notions of a special destiny for humankind. If you've seen the film, you'll realize that we can compare apes in "Planet of the Apes" to those in the first part of "2001" which includes scenes of a group of prehistoric apes who encounter an alien monolith.

The black monolith somehow imprints special abilities on the minds of the group's members, abilities which allow them to learn to make and use tools for hunting and ultimately for battle. (Why this monolith which clearly comes from an advanced technical culture does not give the apes the specifications for computer chips and spaceships right then and there is a puzzle. Why wait millions of years for the apes to become humans in order to figure it all out? But then I digress.)

Apparently these abilities can be passed on genetically, a thoroughly unscientific view known as the heritability of acquired characteristics first proposed by Jean-Baptiste Lamarck. (My aim is not to pick on details of director Stanley Kubrick's visual masterpiece, but to raise a flag to warn that in the painstakingly created realism of this film not all is precisely scientific.)

At the end of the film's prehistoric scenes, an ape tosses a weapon made of bone triumphantly into the air. That weapon dissolves into a shape that roughly matches the form of a spacecraft now moving across the screen--an abrupt jump to the year 2001 on the presumably inevitable upward journey of humankind. (We are left to fill in the intervening years with progress.)

After more dazzling shots of spaceships and a space station, we join Dr. Heywood Floyd mid-flight on a space shuttle to an American Moon base near which another monolith has been excavated, one very much like the monolith we've already seen interacting with prehistoric apes. Oddly, in a movie supposedly presaging our techno-utopian future, the airline food has gotten worse. We watch Dr. Floyd sip from various straws the equivalent of strained carrots and corn and puréed fish from his covered tray. The toilets are tricky, too. In zero gravity there are apparently 10 steps to relieving oneself successfully.

After a briefing at the Moon base, Floyd goes to the excavation site to inspect the mysterious monolith. Evidence suggests that it was deliberately buried 4 million years ago. After Floyd approaches the structure and touches it (much like the apes on Earth before him), it emits a piercing sound, presumably transmitting data to the visiting humans (perhaps including a refresher course on laisser-faire economics or the virtues of untested chemical compounds--we are not told). Presumably, humans clever enough to find and excavate such a monolith on the Moon are ready for the next step--which turns out to be a trip to Jupiter.

(Read no further if you have never seen the film and do not want me to ruin the ending--though I tend to think of the ending as the least compelling part of the film.)

Once at Jupiter the lone surviving astronaut--it turns out really bad stuff happens in between launch and arrival at Jupiter--is transformed by alien powers into an incorporeal being, a star child--at least that's what Kubrick and his collaborator, science fiction author Arthur C. Clarke, call it.

To be fair Kubrick consciously set out to make a mythic film. That's why it includes such fantastical elements. Every good myth does. But what he does not know is that he has captured the modern myth perfectly, to wit:

Human progress is one-way and inevitable. No obstacles can prevent it. We humans are not flung into the future by the random forces of the universe. Rather, we are pulled into our future by our destiny. In the parlance of Aristotle this is what is known as final causes or teleology. End points in the future can supposedly cause things to happen in the present which push us in the direction of the inevitable techno-utopia we are destined to create.

Now, here is the problem. A film which spends so much of its time enlisting realism and scientific fact (as it was known at the time) tells us a thoroughly unscientific tale. And, it is the tale of our times.

We imagine ourselves to be members of a thoroughly scientific culture and to be scientifically minded. But, what science tells us is that the evolution of the universe and thus of planet Earth and its inhabitants is random. It is following no predetermined felicitous course. This process of change could be favorable to humans or it could be horrifically dangerous to them.

Our technological innovations will not necessarily shield us from this change. In fact, these innovations are part of the change. They influence climate in a way that is deleterious to the human future; they empty fisheries with a swiftness never before seen; they lead to degradation of the soil, not in isolated areas, but worldwide; and they poison the food, the air and the water in a manner that is global in scale.

A friend refers to this as the Midgley Effect. Chemist Thomas Midgley Jr. was heralded for his work in creating leaded gasoline and chlorofluorocarbons. The story of leaded gasoline is rehearsed every time we pull up to a gas pump and fill our automobiles with UNLEADED gasoline. Lead added to gasoline for the purpose of preventing so-called engine knocking turned out to be very bad for human health. Big surprise!

But chlorofluorocarbons were even worse. Used primarily as refrigerants from the 1930s onward and later as aerosol propellants, they escaped into the air. No one thought to track their destination until the 1970s when one scientist, F. Sherwood Rowland, asked where these compounds ended up. They were by design inert--that is, they didn't readily break down--so they must be somewhere.

That somewhere turned out to be high in the atmosphere attacking the ozone layer which protects humans and other living creatures from excessive radiation from the Sun. Had it not been for Rowland asking a very specific question and receiving a grant to fund the answer, we might well be living with little or no atmospheric protection from dangerous levels of solar radiation. Such are the perils of our technology. In this case, only one curious man stood between the human species and widespread disaster. Chlorofluorocarbons and other ozone-destroying chemicals were subsequently phased out worldwide by the Montreal Protocol.

Midgley--who believed he was doing good things for society and received many awards for his discoveries--turned out to have "had more impact on the atmosphere than any other single organism in Earth's history," according to environmental historian J. R. McNeill. And, it wasn't a good impact.

One of the pillars of our modern techno-utopian outlook is that invention is presumed to be good and should not be unduly impeded. It turns out, however, that our own science has shown that inventions can be potentially catastrophic.

So, now we come to the central contradiction of the modern outlook. We rely on science. We say we believe in science. But what science tells us about the trajectory of the universe and thus human beings is no more complicated that what "Planet of the Apes" tells us. There is no particular or preordained direction for the future development of humans or the universe we live in.

Yet, the techno-utopian vision that we cling to as modern people rejects this view even as we say our favored instrument of progress is science. Thus, we must conclude that our dissenting party guest's reply above--"They'll figure something out. They always have."--enunciates a religious belief, not a scientific observation.

Science recognizes the role of chance. There are processes beyond our knowledge which generate events we can neither predict nor control. The modern outlook acknowledges chance, but views it as a bothersome bug rather than a feature in nature--one that in principle can be held at bay and ultimately overcome with increased knowledge. In fact, we need not even concern ourselves with planning because God or providence or special instructions from an alien race or perhaps Adam Smith's "invisible hand" in the marketplace will take us to our inevitable destination of ever more dominance. This is a religious view and therefore generally immune to both proof and debunking.

And yet, as professor of environmental studies David Orr has told us our ignorance grows alongside our knowledge. The things we create to "solve" our problems are likely to create more problems which we cannot now anticipate. In short, there is no solution to the knowledge problem. We will forever (or rather for as long as the human species lasts) be subject to chance.

That should make us much more cautious in our enthusiasm for anything that calls itself progress. But it is hard to find any true conservatives in the world anymore. Those calling themselves "conservative" are even more likely than those calling themselves "liberal" to advocate for rapid, unplanned change. A true conservative would question change of any kind, asking whether it might risk ruin for the entire culture or whether its harm, if any, will be limited.

So, let me say it altogether now, this modern creed: Our future as a species is guaranteed by our inventiveness through science and technology while we move down an entirely unplanned but nevertheless purposeful, that is, teleological path that ensures not only our survival but also our dominance indefinitely--extending even beyond the Earth.

This creed purports that our destiny is the cause of present events, events which will inevitably lead to that destiny--circular reasoning if there ever was any. No true scientist would ever make such a statement. No honest observer would call such a belief modern. The only thing that sets it apart from premodern religious beliefs is the insistence that human affairs run only in the direction of progress and cannot reverse.

It's true that an acorn can become a mighty oak. But, it is also true that pigs eat them and that the vast majority of acorns never germinate. Chance happens. Acorns have possibilities. But that is not the same as having a destiny. And, it is important to remember that oaks are subject to the same evolutionary pressures as all other species. While we cannot know the future, it is nevertheless likely that both oaks and humans will someday go extinct, joining the 99 percent of all other species in Earth's history that have disappeared.

In the film "2001" Dr. Floyd addresses his fellow scientists advocating strict secrecy about the monolith on the Moon. He explains:

Now I'm sure you're all aware of the extremely grave potential for cultural shock and social disorientation contained in this present situation if the facts were prematurely and suddenly made public without adequate preparation and conditioning.

I would contend that the shock to the modern mind would not be the revelation that a superior mind is guiding humans to ever greater progress. Rather, a true shock would be to find out that we are adrift on a sea of chance--not necessarily helpless, but vulnerable nevertheless as were the apes at the beginning of the film.

That would be a radical shift of consciousness for it would force us all to hew more closely to a measured and gradual approach to innovation and part far less readily with the proven technologies and approaches of the past. It would be an acknowledgement that we are not the masters of our fate and that no science or technology will ever make us so.

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A special note of thanks to my dear friend and colleague, Dr. James Armstrong, professor of English at Winona State University, for conversations that led to this piece which contains several of his ideas.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, January 04, 2015

Taking a short break--no post this week

I'm taking a short break this week and expect to post again on Sunday, January 11.

Sunday, December 28, 2014

Five energy surprises for 2015: The possible and the improbable

The coming year is likely to be as full of surprises in the field of energy as 2014 was. We just don't know which surprises! I am not predicting that any of the following will happen, and they will be surprises to most people if they do. But, I think there is an outside chance that one or more will occur, and this would move markets and policy debates in unexpected directions.

1. U.S. crude oil and natural gas production decline for the first time since 2008 and 2005, respectively. The colossal markdown in world oil prices has belatedly been followed by a slightly smaller, but nevertheless dramatic markdown in U.S. natural gas prices. The drop in prices has already resulted in announcements from U.S. drillers that they will curtail their drilling operations significantly next year.

But drilling that is already contracted for will likely go forward, and wells waiting for completion will be completed. It can be costly to pull out of drilling contracts. And, failing to complete already successful wells and bring them into production is downright foolish since the costs incurred in drilling the wells including future debt payments remain. In those circumstances, some revenue at lower prices is preferable to no revenue at all.

Having said all that, scaled-down drilling plans when combined with what's left in drillers' immediate inventory both to drill and complete may not be enough to overcome the prodigious production decline rates from existing wells in deep shale deposits of oil and gas which have provided almost all the recent growth in U.S. production. The decline rates are 60 to 91 over three years for tight oil plays and 74 to 88 percent over three years for shale natural gas plays.

If low prices continue for a second year, the cheers for "Saudi" America will disappear. It was never to be anyway. What America has left is high-cost oil and natural gas. And, even at high prices both were likely to peak and decline in the next 5 years. Now, low prices may bring peak production rates in the coming year for both U.S. oil and natural gas--peaks that may never be seen again.

2. World crude oil closes below $30 per barrel. I think that such a price would only last a short time unless the world is in the throes of the next Great Depression. But since OPEC has reaffirmed that it will continue to pump oil at current rates until non-OPEC production declines, look for this game of chicken to create increasing inventories of oil worldwide for several months. The underlying cause for rising oil inventories is slowing economic growth in much of Asia, especially China, and economic stagnation in Europe and Japan. Any pickup in worldwide growth would send oil significantly higher than where it is today as oil demand increases.

3. Developments in solar thermal energy show that it can solve the storage problem for electricity from renewable energy. The difficulty with renewable energy supplying electricity is that electricity is very expensive to store (and so we do very little of this). Storage is important because renewable energy production comes when the wind blows and the sun shines, but not always when we need it. A breakthrough in solar thermal may be in the offing that would overcome previous limits on temperatures generated by solar thermal capture devices and make it possible to store heat cheaply enough to run solar electric generating plants around the clock at high output.

4. A climate agreement in Paris calls for binding greenhouse gas emissions limits. Expectations are exceedingly low for next summer's international climate conference to be held in Paris. The aim is to agree on binding limits for carbon emissions for the world's nations. Few people think that will happen no matter what the urgency of the matter.

But we cannot know what climate events might occur between now and the Paris conference that would change the outcome. It would have to be big, on the order of an ice shelf plopping into the ocean and raising sea-level enough to notice. Nevertheless, I would say that such a disturbing event becomes more likely with time and might be necessary to move the world's nations to a binding emissions agreement.

Even some progress in the direction of a binding agreement will have the world's energy analysts talking about stranded assets, a reference to the oil, natural gas and coal that would have to be left in the ground in order to avoid breaching agreed limits on carbon emissions. That would have significant consequences for the companies whose work is extracting and refining hydrocarbons.

5. Oil prices reach $100 per barrel before December 31, 2015. This is the other extreme from surprise No. 3. Almost all analysts expect oil prices to remain low, and many believe we are now entering a new era of cheap oil. (I, of course, don't buy it.) An earlier and more dramatic drop in production than anticipated and a greater rise in demand than anticipated could easily bring prices back above $100. I think this is more likely to happen later in 2016. But the timetable for a return to prices above $100 could be accelerated by many factors not now apparent.

I regard none of these events as likely which is why they would be surprises. But even one of these surprises would result in large financial gains or losses for many. And, either of two of them--binding greenhouse gas emissions limits or a breakthrough in renewable energy storage--would have giant consequences for the entire world.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, December 21, 2014

Greed explained: J. Paul Getty, Aristotle and the Maximum Power Principle

Regular readers know I often write about energy, and while this piece may not at first blush seem like an energy story, you'll soon see that the quest for an ample supply of energy is, in fact, at the heart of human greed.

Greed is often said to be a central cause of our ecological and social ills. It motivates excessive and injurious exploitation of the planet and thus threatens the existence of many species including humans themselves. It leads to excessive economic inequality and the social ills presumed to be associated with that inequality. And, of course, greed is regarded as not just bad for the biosphere or society; it's bad for the soul and therefore earns a place on the list of the seven deadly sins.

Many people are convinced that greed is learned and therefore can be unlearned or not taught in the first place. Others believe that greed is simply an inherent evil in humans, part of the human condition.

Someone once asked oil tycoon J. Paul Getty how much money is enough. He replied, "A little bit more." The fictional financier Gordon Gekko in Oliver Stone's film "Wall Street"--who is best known for the phrase "greed is good"--gives a different answer: "It's not a question of enough, pal. It's a zero-sum game – somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred – from one perception to another." Finally, I offer the words of Noah Cross, a character played by John Huston in the film "Chinatown." Cross is asked what else such an enormously wealthy man as himself could possibly want, and he replies: "The future."

In these three quotes we have the essence of Howard Odum's Maximum Power Principle. (See, I told you we would come back to energy!) Essentially, what Odum observed is that living systems--humans, for example--seek to maximize their energy gain. Now, in modern society, the way humans primarily gain access to energy is through money. Money, it turns out, is merely what allows us to command energy--in the form of humans, machines, or even animal power--to do what we want it to do. Money is essentially a method of assigning "energy credits." And, energy, of course, can used be to make us a product, render us a service, or provide either of these to someone else as a gift or in fulfillment of a contractual obligation. Without energy, nothing gets done.

Many people believe as J. Paul Getty did--that one can never have enough money (read: energy). But, Gordon Gekko enunciates an important implication of the Maximum Power Principle: People will compete with one another for the available energy supplies (in the form of money or other types of wealth). And, Noah Cross, in ways both literal and figurative, shows us just how far people are willing to go to have an impact on the future, to insure the continuation of their genetic line and their vision for their community.

Despite our modern pretensions, we humans are still all part of an evolutionary process that pushes us to compete for survival and for the propagation of our genes. Access to energy (and all of its products and services) confers advantages in this contest. And, energy in the form of wealth provides a special intangible advantage: increased social status which can be an asset when pursuing sexual partners. Wealth attracts members of the opposite sex because it implies the ability to care for a spouse and for any offspring and provide many advantages such as ongoing access to better health care, nutrition, education and social opportunities.

Aristotle noted that the desires of men are unlimited. He also claimed that "the amount of household property which suffices for a good life is not unlimited." Aristotle is most often associated with the notion of the golden mean. Simply stated, it signifies not too much and not too little in all things.

Thus, Aristotle's vision seems contrary to the Maximum Power Principle. Why would anyone intentionally limit the amount of energy available to oneself? There is probably a theoretical limit to the amount of energy that might be useful to any one human being. The entire energy output of the Sun, for instance, would likely be beyond the capability of one human to manage and use to gain advantage. But, the world has many billionaires who find no end of ways to spend their accumulated energy credits and who often populate the world with many heirs from many marriages.

What possible force could counteract the drive for dominance and self-propagation and thus the desire to maximize one's energy gain to facilitate that dominance? There is research which suggests that beyond a certain point of energy consumption (around 100 gigajoules per year per person), quality of life measures for modern societies barely improve. But that's for society as a whole, not the individual.

As it turns out, we humans have a long history of contemplative traditions, both religious and secular, traditions that preach simplicity and often poverty as a way of life. These traditions eschew worldly goods or at least maintain that each person should have just what he or she needs for a good life and no more. How do such traditions square with the Maximum Power Principle? The people who adhere to these traditions, after all, voluntarily and consciously choose to consume less energy than they might otherwise be able to.

There may be a clue in that. Our default instinctual response is to seek advantage over others. Yes, we may cooperate where that seems the wisest course or where it is apparent that we cannot dominate the situation. But, even within one group or nation, there is simultaneous cooperation AND competition. But, we do not ordinarily cooperate to REDUCE our access to resources.

So, we might say that such voluntary and conscious choosing is the next step in evolution. But, how can it be? Such a way of life has been a feature of many civilizations throughout history. It is already a feature of evolution in that those who choose such a way of life have not died out. It may be that such a path is an adaptive response which optimizes human survival over time. This is merely speculation. But it would explain why self-abnegation is so persistent across cultures and across time. When humans need the gene that tells them to reduce their resource use, it is there.

But there is another claim made for the simple life, for a life which seeks only what is sufficient to thrive rather than to dominate. Quite often those following this path say they are happier than they were when following the path of continual acquisition of wealth and status. That claim, however, would seem to make millions of years of human evolutionary development appear pathological--unless you realize that natural selection optimizes life for survival and propagation, not happiness. Therefore, our default behaviors are tuned to help us survive and pass on our genes, not necessarily bring us contentment (as is evidenced, in part, by the modern divorce rate).

That is not to say that there isn't some happiness in mere survival and certainly some in the process of creating and rearing new life. But, this is not the kind of happiness that those preaching simplicity mean. They mean an enduring, deeply felt and persistent sense of satisfaction in an entire way of life.

A friend who used to serve very wealthy clients for a Wall Street brokerage firm once remarked that even as clients doubled or tripled their wealth, they seemed no happier. Such is the drive for dominance that many people continually seek invidious comparisons with others. Even though such comparisons may bring about enhanced social status, they do not seem to result in any deeper contentment.

Whether that part of us which allows us to find happiness with less, which allows us to loosen the chains of our drive for dominance and replace them with cords that bind us to others for mutual benefit--whether such an outlook will be awakened among more than a small sliver of the population is an open question. The evidence is not promising. The ruthless tend to get ahead and are often held up as examples of how to live.

But the story isn't over. With the challenges that humans now face in climate change, resource depletion, soil degradation, water scarcity and myriad other issues impinging on human survival--all of which have their origins in excessive energy use--we may find that the cooperative and abstemious strains within us may be called to the fore. Or we may find that these problems simply lead to a Hobbesian war of all against all.

So, the question is: Do we--meaning the human species as a whole--have any choice in the matter? Or are we as a species destined to live by the Maximum Power Principle to its seemingly inevitable and calamitous conclusion--a story in which the drive for maximum energy gain is no longer adaptive, but rather dangerous to the continued existence of humankind?

Our actions will be our answer.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.