Bye-bye Carbon

Photo by K B on Unsplash

Ours is a carbon based economy. On the other hand, carbon emissions are wrecking the climate; for proof just take a look at this short tour de force from Paul Beckwith. In related news UK emissions in 2023 fell to lowest level since 1879. But why is that so? Are we on a path to a green Nirvana, or something entirely different is going on? If you suspect that it is the latter, then this one is for you.

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For starters, take a look at this chart, from the Carbon Brief article linked above. Wow, the UK is back to 1879 levels of emissions, when steam locomotives were all the hype, and we didn’t have neither airplanes nor cars! I mean, isn’t that shocking?! This is a precipitous, relentless fall, clearly signalling an end to an era. 

Source

There is one minor snag though: this has little to nothing to do with climate policies. And while the well researched and fairly objective Carbon Brief article admits so, it fails to name the elephant in the room. Beyond the many blips and dents what you can see on this chart, dear reader, is a textbook example on how peak carbon looks like. The UK has unwillingly provided us with a Petri-dish experiment on how the depletion of a finite energy resource puts an end to an era of economic, military and geo-strategic dominance together with rising living standards.

Missing entirely from the conversation around both emissions and economic growth is the fact that this is what happens when a country is running out of cheap and easy to access carbon, like easy to mine coal, or oil and gas gushing out from a well. Take a glance at the chart above once again. As you can read from emission data, first coal mined by coal has peaked in the run up to WW1. As easy-to-access, close to the surface collieries slowly depleted, deeper more remote deposits had to be opened up. More and more energy had to be used up to access these reserves: mine shafts had to go deeper, more rock had to be removed, more water had to be pumped up, and more oxygen moved down… And all this took place in ever more remote locations, requiring more transportation by rail. (Remember what powered those steam locomotives?) 

Needless to say, this was an unsustainable trend. And as it is usual with such activities, coal production has started to wind down. The heart of the British Empire was in a huge, huge trouble: the Brits have clearly moved past their prime time as they failed to expand, then prevent the collapse of their coal based economy. Energy use per capita (relative to the world average) tells this story in a single graph better than a thousand words.

UK energy use per capita relative to the world average. 1 means that the average UK citizen used the same amount of energy as any other member of the global community. At the peak of their empire, on the other hand, Brits burned 6 to 7 times as much carbon based energy as an average world citizen. Image credit: Economics from the Top Down

After WW2, oil imports were ramped up rapidly, and thanks to this most dense energy source, the British economy soared once again, reaching an all time high in carbon emissions. The relentless fall in per capita energy consumption (relative to the world average) did not stop however. Despite the fast economic revival Britain was no longer a major power, and was losing ground fast.

The oil-boom has ended as quickly as it has started though, with the peak in US oil production and a subsequent Arab oil embargo leading to the oil shock of the 1970’s and 80’s. The ensuing economic contraction has led to the election of Thatcher and the rise of neoliberal economics. As an unexpected side affect, the sustained rise in oil prices made the North Sea oil start to look like a good idea... The sudden rush of oil from the North Atlantic however, could not possibly counterbalance the then already ongoing deindustrialization of the island nation, and thus only made a few people richer. North Sea oil duly produced a smaller secondary peak in emissions, something which eventually fizzled out during the early 2000’s when all the rich pockets of oil started to produce that ominous slurping sound. 

UK emissions are in a free fall ever since. The reasons were the same with coal: energy economics. While there were plenty more hydrocarbons beneath the North Sea, they were found in ever deeper, ever smaller, ever more remote pockets — requiring drilling more wells, more frequently. The energy needed to be invested into (and payed for) obtaining them simply did not, and will not worth it.

And how do we know that this fall in emissions is not ultimately due to “renewables”? Well, 78% of Britain’s primary energy still comes from fossil fuels, mostly oil and gas. Mind you, it could not possibly be in any other way: “renewables” are an intermittent source of electricity, and thus wholly unable to power agriculture and transportation, let alone the manufacturing of steel, cement, plastics or fertilizers — the four pillars of civilization — which Brits still use in large quantities. High heat, stable electric current and yes carbon, are essential for the production of these materials — not to mention a wealth of other indispensables like glass, aluminum, or a range of chemicals. 

If you ever wondered why “renewables” manufactured by “renewables” at scale are not a thing, especially not in Europe, then look no further for an answer.

As an iron law of modernity, a fall in CO2 emissions equals a fall in real economic output; leading to the same process what we can observe now all across Europe in general, and Germany in particular. An economic decline, which could be masked only temporarily by globalization, and an overvalued currency propped up by foreign investments in the banking sector, or an increasingly financialized economy. This is why oil consumption has a statistically perfect correlation with GDP, not because the oil industry pays everyone to say so. So while decoupling economic growth from carbon emissions might look like a plausible explanation on paper, you cannot even make essentials like food or cement at scale without fossil fuels. No wonder that the idea has been thoroughly and absolutely debunked five years ago, already:

The conclusion is both overwhelmingly clear and sobering: not only is there no empirical evidence supporting the existence of a decoupling of economic growth from environmental pressures on anywhere near the scale needed to deal with environmental breakdown, but also, and perhaps more importantly, such decoupling appears unlikely to happen in the future.

Shutting down industry, then importing everything which is necessary to maintain modernity does not solve a thing. Thus while recycling and putting a carbon tax on imports might sound like a good idea, all it will achieve is a much higher cost to customers, and a decoupling of European raw material prices from the global market. Sorry, there is no such thing as a free lunch.

No carbon, no economy.

The problem, still waiting to be understood by European elites on both sides of the Channel, is that money is a relatively poor source of food calories, and also burns relatively fast in a furnace. In other words: without a real economy of goods and services to back it up, any currency could, and inevitably will, lose its value pretty fast.

So while in theory, based on the amount of fossil fuels beneath our feet, we could create Venus on Earth as we double the size of the economy every thirty years or so, in reality neither is about to happen.

We are facing a world-wide affordability crisis when it comes to hydrocarbons. Without going into excess debts (which has become all the more expensive with higher interest rates) not even rich nations like the UK could afford to by more oil and gas. Smaller ones are already being bankrupted by these forces, as we speak. The question raises itself: why don’t Gulf monarchies, the shale producers, Guyana (or fill in the blank) produce more? What is going on in the oil business?

Well, it looks like oil majors are playing a game of ‘last man standing’. Instead of investing in oil exploration and expanding production, they are buying up each other’s resources in the Permian (a now maturing shale play) and the Starbroek near the shores of Guyana. Two finite, relatively small reserves compered to the rest of the oil market. In fact, these two plays are rather the exception than the norm; for the rest of the world production struggles to remain flat. The Starbroek and the Permian are the last two remaining areas where oil production could be grown for a relatively modest investment. Why, if such technical tricks could be applied elsewhere for a similar cost, we would see a glut of oil… Who wouldn’t want to produce oil at $25–30 and sell it for $90? The wee little problem we have is that on a global level we cannot produce more oil at this price. And soon, not even for a higher one. Simply put: we have run out of the easy to access stuff, requiring low to modest energy investments to get.

Photo by Ben Wicks on Unsplash

Hence a push towards deep water exploration. As conventional discoveries plunged below 1 billion barrels in 2023 (one thirtieth of annual consumption) oil companies went desperate in their search for oil. The issue with deep water (as you might have already guessed) that such oil takes much more energy to obtain: cannibalizing most of the gains made by opening such a field. For an oil major this is less of a problem (as long as they can sell oil above breakeven) but for the rest of the economy it poses a big dilemma. Increased drilling activity (especially offshore) shoots up demand for steel, coal and oil required to build and operate those platforms, while giving back relatively little for the rest of the economy. And while deep water oil may postpone the gross (absolute) peak in oil output, it does nothing to stop the fall in net energy from petroleum.

Despite (or as you will see: exactly because) of these hurdles, world liquids production just reached a new high — but GDP growth remained a laggard. So while there might seem to be a glut of “oil” in the world, the physical oil market is experiencing significant tightness, manifesting in supply issues in various regions (including vessel diversions, or freeze-offs in the US), and logistical constraints in the North Sea. How is that possible?

Well, you see not everything is “oil” what is reported as such. Real petroleum production still remains below it’s all time high reached in November 2018. The additions are coming from natural gas liquids and other products which are absolutely no substitute for oil. It’s like reporting wheat production together with rapeseed harvests: one does not substitute the other. And while there might be a glut of aggregate “seed” production, the world could still face a famine due to a lack of flour.

Besides that, the increased material and energy cost of drilling places an increasingly harder to overcome logistical burden on the petroleum industry. And this is not a one off problem to be solved in a year or two, but a persistent trend. As easy to drill reserves deplete and are being replaced with ever harder to get resources, the energy cost of oil will keep on rising, and rising, and rising… Till it becomes physically impossible to maintain this system reaching a byzantine level of complexity with an energy hunger to match. Don’t let yourself be misled by the headlines, this energy cannibalism is the real reason behind oil companies thinking about deploying small modular nuclear reactors to power their increasingly energy hungry activities, not their desire to “decarbonize” their inherently carbon intensive businesses.

‘Nuclear powered floating rigs? Sure, that sounds cheap and easy to make. Oh, and it’s green too!’

Photo by M Zaedm on Unsplash

This relentless rise in energy investment needed to replace depleting wells, let alone bringing more oil onto the market, leaves a mark on even the best financed players’ balance sheet. Saudis, for example, are literally out of money to expand oil production, and rather pay dividends than to invest in future production. Perhaps, they are not so eager to squander their oil wealth in one fell swoop (like US shale producers), but a worsening return on investment should at least ring some alarm bells…

A few years ago, a Brent crude price of $80 per barrel was about enough for Riyadh to balance its budget, but with the inflation trends of the past couple of years and all those rate hikes, it might well need higher Brent for that balancing.

The growth in global oil production is approaching its end, before a terminal decline sets in. Something, that with a natural decline rate of 6 million barrels a day globally could be pretty steep. (This of course presumes that everybody decides to stop replacing depleted wells all at once, which I find highly unlikely.) However, even a steady annual 2–3 million barrel/day production loss could lead to a massive deterioration of the global economy. Sure, more and more trucks will be converted to burn LNG or other manufactured fuels (gas to liquids or coal to liquids, biofuels, synfuels, etc), but as the production of these fuels are intimately tied to oil production and have a dismal energy return on investment, I would not bet the house on their success. 

Most natural gas globally, for example, still comes as associated gas (i.e. produced from the same fields and wells as oil). Even more importantly, however, synthetic fuels squander at least half of the energy from their input sources. It takes twice as much gas to create LNG, and then forwarding it to the end user, than simply piping the same gas to a nearby location. This not only makes such fuels incomparably higher priced than traditional fuels, but also ruins their energy return on investment ratios. (The same goes to green hydrogen, requiring three to four times as much energy to produce as it is returning to the economy.) So is it good news then, that while traditional petroleum production stagnate, we see a steady increase in ‘liquids’ production…? If you ask me, I see this as a warning sign that we have started to cannibalize our energy production, and turn everything into a liquid fuel to keep the economy from crashing. No matter the cost, no matter the energy returns. 

We are approaching peak net energy much faster than peak oil itself.

Is it any wonder, that diesel prices are set to surge, signalling a continuation to the diesel crisis ongoing for many years now? I cannot emphasize enough, that without diesel there is absolutely no modern economy — no agriculture, no mining, no transportation — and it has no real substitute. Alternative fuels are much more expensive due to the fact that they require much more energy to make, and batteries are simply nowhere near in energy density. The ever increasing energy inputs going into creating this indispensable fuel — either through the relentlessly increasing energy cost of drilling or blending in more and more synthetic- and biofuels — will eventually lead to peak diesel affordability. This will mean, first of all, less long distance transport and trade, then second, more expensive minerals (making electrification and “renewables” even less possible to achieve), not to mention the innumerable shortages of just about anything from wood to grains, or from microchips to chemical products. 

Again, watch and understand the underlying trends, not the day-to-day trading data, or the small ups and downs in production. On a finite planet, with a finite amount of high quality coal oil and gas reserves, there must come a point when a relentless rise in energy investment — due to the depletion of the easy to get stuff — would lead to bottlenecks and shortages. As a result the energy system would respond by increasing complexity to offset the fall in net energy somehow. It should not come as a surprise then that the much touted “renewable” and nuclear powered green economy remains hopelessly tied to affordable diesel (from mining resources to delivering everything on site), and other fossil fuels powering the creation of all the necessary steel, cement and the plethora of other technologies. These “new” energy resources are nothing but a desperate attempt to buy more time — to watch more cat videos while getting rich on Bitcoin. 

“Green energy” merely delays the comprehension of the fact that modernity is wholly incompatible with both climate goals and the finite nature of coal oil and gas.

The fall in CO2 emissions, while good news for the future of the global climate, signals a turning point in the life of this civilization. The UK, Germany, and Europe in general are just the first canaries to kick the bucket in this rapidly depleting coal mine we call the ‘economy’. I know this might sound “depressing” to some, but it is what it is. I see no use putting lipstick on this pig. This is how infinite growth ends on a finite planet, much sooner than the resulting climate change could wreak havoc on the economy. This civilization was built and maintained by the power of fossilized plants, and as their carbon returns to the atmosphere to recreate a state of climate not seen in the past 3 million years, the human enterprise will return to a much simpler state and to much, much lower numbers; not seen since the Neolithic age.

Until next time,

B

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