Downslope

Photo by Itai Aarons on Unsplash

The fossil fuel bonanza is slowly coming to an end. Not with a bang, mind you, but with a whimper: presenting us with a long winding road back to a much simpler life. If you happen to live in a region consuming half of the world’s oil supply, though, the way downhill will be one hell of a ride… And if you think we can innovate ourselves out of this hot mess, then think again and buckle up instead.

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One does not need to be an oracle to see: if you have a finite resource, and you can no longer find it in quantities sufficient to meet demand, you will sooner or later run out of it. Before that happens, though, the rate of extraction will reach a peak, and as oil fields give up the ghost one by one, a ‘long descent’ will begin. Not that any of this should be big news: there were plenty of warnings from M. King Hubbert to Charles A.S. Hall and Jean Laherrère, or from the Limits to Growth study to the countless updates published to it, all saying that sooner or later the party will end. Our corporate overlords (hand-in-hand with the many autocrats of the world) however, spared no effort to deny that we could ever run low on oil — and we believed them, because we wanted to. The fireworks must never end, so we could keep driving our (ever bigger and heavier) cars to (ever larger) supermarkets and buy just about any product we wished to have. 

Physics and geology rarely gives a hoot what we wish to have, though. Energy is everything, and now we have to face the prospect of a net decline in what’s available (that is: left to be used for purposes other than drilling more wells to replace depleted ones, or mining minerals to build power plants, dams or “renewables”). And while oil production is still growing in terms of the amount of crude oil and condensate brought to the surface, it still hasn’t reached its all time high in 2018. This production growth after the pandemic slump is even more staggering if you add in all sorts of other “liquids” like LNG, ethane, biofuels and what not — resulting in a number beyond a hundred million barrels per day — but what about net energy? (1)

World crude plus condensate (a.k.a oil) production. “The chart was created from data provided by the EIA’s International Energy Statistics and are updated to April 2024. This is the latest and most detailed/complete World Oil production information available.” (Source)

When it comes to expanding drilling and pumping ever further the gains does not come from opening the taps a little wider. Each and every barrel added to the mix comes from ever deeper wells, from ever deeper seas, ever further away from the shore. As more and more CO2 and water must be pumped underground to force just a little more juice onto the surface, or ever more wells need to be fracked open (then re-fracked), the energy cost per barrel increases exponentially. To illustrate this process, compare a “simple” pumpjack consuming a modest amount of fuel to lift oil out of the ground, with a floating platform 24 stories high, weighing over 17000 tons, and with a deck the size of 15 basketball courts. Or how about Chevron’s latest invention of a new high-pressure extraction technology (announced last week) deployed at a deepwater well in the Gulf of Mexico? I wonder what the energy demand of these beasts are… 

“Solving” this net energy dilemma is not a question of ingenuity, mind you. Adding more complexity and more technology always comes with an increased energy demand. As low cost drilling techniques fail to keep up with the depletion of easy to get oil, and will have to be replaced by ever more energy intensive methods, the situation can be expected to worsen even if we just try to maintain a steady supply of fuel. The question, whether we surpass the peak of November 2018 or not, will thus become moot. The aggregate net energy from oil (available for other uses) will most likely start to shrink after 2025 — no matter what we do. This is going to be one major event, a true turning point not only for western nations, but to the human enterprise as a whole. Combined with a looming peak in aggregate crude oil and condensate production (scheduled to arrive by 2030) it will be no longer possible to pretend that we have enough fuel to do everything we want. Actually, we would have to contend with less and less fuel production year after year.

Don’t expect anyone to come on TV and explain you all this. Mainstream economist are just as clueless about our deteriorating energy situation as our leadership class. Some of them at least understand that (for good or bad) fossil fuels underpin everything we do: from growing food to making cement and steel, or — for that matter — solar panels and wind turbines. Needless to say, none of our betters and elders are interested the slightest how hot it will be for our kids, or if New York will become the next Venice by the end of this century… Or, that it would cost more energy (and as a result more money) to extract the remaining oil, gas and coal than what the economy could ever handle without collapsing. As long as drilling newer and newer holes, or building more and more “renewables” remains profitable thanks to government subsidies, the grift will go on. Until it no longer can. (Never mind the $280 billion problem caused by the millions of abandoned wells, or the the fact that neither wind turbines nor solar panels can be built or recycled in the absence of fossil fuels.)

Photo by Mohamed Fsili on Unsplash

What will happen then, when a decline in net energy can no longer be explained away with a slight recession, or a turn towards a ‘service economy’? First, there is absolutely no way of telling, when we will hit peak oil, let alone peak net energy, or how would our politicians, the markets and the economy as a whole would react. It could very well be the case that we have already passed this point, just as we have one, two or even five years to reach it. The important thing to understand here is that a) it is inevitable (sorry), and b) it will be so subtle at first that hardly anyone will notice. We are talking about reaching the highest point on a massive bell curve spanning across more than a century, after all… Yet, the question poses itself: what will happen when the penny drops?

As you could’ve already guessed, what follows is nothing but a thought experiment, with very little predictive power. However, I find it important to lay it out for you, as the repercussions of peak net energy supply will affect each and every human in general, and us in the collective west (represented by OECD) in particular. Why? Because we in Europe and North America consume a much higher share of fossil fuels and mineral resources, than what our population size would suggest:

The 38 member states [of the OECD] cover an area of 37.22 million km² and about 1.39 billion inhabitants. This corresponds to 24.69 percent of the world’s habitable area and 17.26 percent of the world’s population.

OECD countries consumed almost 45% of world oil supply in 2023, which is, by the way, is already down from 50% in 2013... Had we consumed only as much as the rest of the world on a per capita basis, leaving the remaining oil in the ground, the world in total would have consumed 33.4% less petroleum in 2023. If you add in the fact that a considerable amount of oil consumed by the rest of the world actually went into mining minerals, manufacturing and transporting goods headed for western countries, the world could have done just fine with only half of last year’s production. (That would have meant that every German or American had to live like an average Pakistani, but that’s another story… That doesn’t change the fact, though, that half of the world’s oil produced in 2023 was used up to feed, clothe, house, power and entertain a mere one sixth of its population.)

Now, consider what happens when the world economy starts to grapple with the fact that soon a smaller and smaller amount of net energy will be available to it. This means an ever smaller and smaller amount of fuel remaining to power heavy duty vehicles digging for coal and drilling for natural gas, or ploughing fields, delivering goods, and keeping the world economy in general alive and healthy… A smaller amount of oil will inevitably mean less materials produced, less stuff manufactured and delivered (including microchips and solar panels, too), as well as less electricity generated… Eventually resulting in a reversal of all past productivity gains. What would our Professional Managerial Class / the Sacred “Market” / Santa Claus (make your pick) prefer to do then? Grow more food or mine copper and lithium? Build more bridges and dams or houses? As things stand today, the price of essentials will be allowed to rise through the roof, leaving less and less money for anything else… Problem solved — for the well-to-do, but not for the remaining 90%.

Photo by Nikolai Justesen on Unsplash

After some time, though, but I suspect then rather suddenly, a realization will hit that there is simply not enough collateral out there (in the form of real economically viable resources) to cover all the outstanding debt, their derivatives, and the derivatives of their derivatives — not to mention all those stocks and bonds. I mean it should’ve been more than obvious to anyone above fifth grade that a debt level already growing faster than the economy is not a sign of good times… and that defaults will follow. I have a feeling that a slowly shrinking supply of just about everything made with oil — from grains to copper — will drive the message home in a spectacular way, making the Wall Street crash of 1929 look like a leisurely Sunday afternoon. 

The ensuing financial crisis, the fall of many currencies, exploding bond markets, spiking then abruptly falling raw material prices, freezing world trade, bankruptcies etc. will be one bloody spectacle. Money, stocks, bonds, letters of credit etc., however important we think they are, are all nothing but mental constructs, though. While much of the paper wealth owned by the top 0.1% will be wiped out in an instant, and while there will be severe disruptions in supply chains all over the world (resulting in (hyper)inflation, massive shortages, riots and all the rest), such mental constructs could be replaced with another set of digital wizardry, restoring at least some semblance of normalcy.

What could (and thus will) not be restored is material growth. We will enter an age of ‘negative sum games’, when year after year there will be less and less cars, houses, clothes etc. produced on a global basis. That doesn’t mean however, that some regions could not do much better than others. Depending on how deep the rift between Eurasia and the West will grow by the time the crash comes, it might be possible that while the OECD will enter a massive depression (resulting in the definitive end of its political and military hegemony, and the dissolution of many its member states and institutions), many Eurasian countries could do more or less fine, and continue growing for a while.

Just think about it: if oil and other resource consumption in western nations would shrink back to current rest of the world average as a result of a massive drop in living standards, the world could shed half of its oil supply without 83% of the global population even taking notice. Sure, many Asian workers, African and Latin-American miners (among many others) would lose their job, as Europe and America would no longer import as much as before, but the growing economies of what used to be called the “third world”, I suspect, would rapidly make up for the difference. So, after a massive slump, Eurasia could climb back to where it was — at least until the depletion of rich easy to get deposits eats up their resource base as well…

The same — unfortunately — could not be told about the West: they have already used up their own easy to get minerals and energy, and are now busy wasting all the remaining goodwill of the rest of humanity. Europe is already forced to import much of its oil, gas and coal — neither of which could have been replaced by “renewables” so far. If fracked, “shale” oil and gas will peak then start to decline in the U. S. later this decade, America too, will be forced to import an ever larger share of its fuel supply. In a world, where production is falling everywhere else, though, suppliers will have a much bigger say to whom they are actually willing to sell their fossil fuels to. A thing to ponder on.

Again, I do not wish this to happen, let alone pretend that I know how and when such things would unfold. I’m no oracle. But coming from a manufacturing and supply chain background, I simply cannot imagine how the realization that we have indeed reached the end of growth could not upend everything we came to rely on... Again, there might be a several years long delay before the penny drops — thanks to the many financial and political machinations, wars, manufactured crises and such — but then all bets are off. We are now at the last stage before energetic bankruptcy hits: fracking the source rock with such an immerse power that it induces earthquakes, build floating platforms 24 stories high and weighing over 17000 tons… with an energy consumption to match. No one knows exactly how or when peak net energy will hit, but no one in charge is preparing for it either. One thing seems to be sure: it will be one hell of an event.

Until next time,

B

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Notes:

(1) Producing much of these so called liquid “fuels” (some of them are actually feedstocks to plastics and ammonia production) takes a whole lot more energy, than what they give back in return. For example when making liquefied natural gas (LNG), the chilling and compression operation alone takes up as much energy than what is stored in the end product itself. In other words: only half of the extracted natural gas gets transformed into LNG, the other half is burned to power the LNG facility, the ships and docks. And while this is certainly good for business (at least on the short run), the rising energy cost of energy is slowly killing the economy.