Tomasz

“The era of cheap & abundant energy is long gone. Money supply & debt have grown faster than real economy. Debt saturation is now a real risk, requiring a global scale reset.”"We are now in new era of expensive unconventional energy

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“The era of cheap & abundant energy is long gone… Money supply & debt have grown faster than real economy. Debt saturation & paralysis is now a very real risk, requiring a global scale reset.”"We have entered a new era of expensive [unconventional] energy that is likely to trigger a long-term economic contraction."

Report containing 510  pages is published by the Geological Survey of Finland (GTK), which operates under the government’s Ministry of Economic Affairs. GTK is currently the European Commission’s lead coordinator of the EU’s ProMine project, its flagship mineral resources database and modeling system.

http://tupa.gtk.fi/raportti/arkisto/70_2019.pdf

Quote

 

Government Agency Warns Global Oil Industry Is on the Brink of a Meltdown

We are not running out of oil, but it's becoming uneconomical to exploit it—another reason we need to move to renewables as quickly as possible.

By Nafeez Ahmed

Feb 4 2020, 2:00pm

A government research report produced by Finland warns that the increasingly unsustainable economics of the oil industry could derail the global financial system within the next few years.

The new report is published by the Geological Survey of Finland (GTK), which operates under the government’s Ministry of Economic Affairs. GTK is currently the European Commission’s lead coordinator of the EU’s ProMine project, its flagship mineral resources database and modeling system.

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The report was produced as an internal research exercise for the Finnish government, which until 2019 held the Presidency of the Council of the European Union.

Signed off by GTK’s director of scientific research Dr Saku Vuori, the report is written by GTK senior scientist Dr Simon Michaux of the Ore Geology and Mineral Economics Unit. It conducts a comprehensive global assessment of scientific research into the state of the global oil industry with goal of determining how the risks of a global supply gap could impact mining and mineral production.

The peer-reviewed report calls for the European Commission to consider oil as the world’s most important "critical raw material." Despite offering a scathing critique of conventional peak oil theory, the report arrives at the shock conclusion that the economic viability of the entire global oil market could come undone within the next few years.

Oil, oil everywhere, too costly to drill

The plateauing of conventional crude oil production in January 2005 was one of the triggers of events leading to the 2008 global financial crash, according to the report. As debt built-up in the subprime mortgage sector, the crude oil plateau drove up the underlying energy costs for the entire economy making that debt more difficult to repay—and eventually resulting in catastrophic defaults. The report warns that “unresolved” dynamics in the global energy system were only temporarily relieved due to "Quantitative Easing"—the creation of new money by central banks. A correction is now overdue, it warns.

The report says we are not running out of oil—vast reserves exist—but says that it is becoming uneconomical to exploit it. The plateauing of crude oil production was “a decisive turning point for the industrial ecosystem,” with demand shortfall being made up from liquid fuels which are far more expensive and difficult to extract—namely, unconventional oil sources like crude oil from deep offshore sources, oil sands, and especially shale oil (also known as "tight oil," extracted by fracking).

These sources require far more elaborate and expensive methods of extraction, refining and processing than conventional crude mined onshore, which has driven up costs of production and operations.

Yet the shift to more expensive sources of oil to sustain the global economy, the report finds, is not only already undermining economic growth, but likely to become unsustainable on its own terms. In short, we have entered a new era of expensive energy that is likely to trigger a long-term economic contraction.

The coming crash

‘Quantitative Easing’ or QE as it’s often known in shorthand, consists of massive programs of money creation through central banks purchasing government debt. But the report warns that the scale of QE could pave the way for another financial crash as oil markets become unstable, most likely within half a decade.

The role of QE in propping up the oil industry and wider global economy was not anticipated in traditional peak oil theory, which failed to predict the low oil prices endangering profitability. The report concludes that: “The era of cheap and abundant energy is long gone… Money supply and debt have grown faster than the real economy. Debt saturation and paralysis is now a very real risk, requiring a global scale reset.”

Although the world therefore needs to urgently transition away from fossil fuels, it may well be too late to do so in a way that avoids an economic crisis. And doing so will require industrial civilization as we know it to be fundamentally transformed:

“To phase out petroleum products (and fossil fuels in general), the entire global industrial ecosystem will need to be reengineered, retooled and fundamentally rebuilt," the report notes. "This will be perhaps the greatest industrial challenge the world has ever faced historically.”

Professor Nate Hagens, a former Vice President at investment firms Salomon Brothers and Lehman Brothers who now teaches ecological economics at the University of Minnesota, said he "finds the report quite plausible."

"But our institutions and policies and expectations are ‘energy blind’,” he told me. He believes that the report’s warning of a coming economic crisis is very likely.

“We optimize around growth, which requires energy which requires carbon energy,” he said. “We have created approaching 300 trillion dollars in financial claims, on a finite amount of high quality resources... All in all, we’ve created too many claims for future energy and resources to support.”

From Saudi peak to shale bubble

The report offers the first independent public government assessment concluding that Saudi Arabia, once the world’s largest oil producer, is now probably approaching (and may already have passed) a production peak.

The study cites accelerating rig counts amid disproportionately low oil output as mounting evidence of the Saudi oil sector’s declining productivity. It also cites data from the recent IPO held by the Saudi national oil firm, Aramco, indicating that production levels from the country’s largest field, Ghawar, is 1.2 million barrels lower than previously claimed, suggesting the field is nearing maturity.

Meanwhile, as Saudi Arabia has been unable to keep up with demand, US shale has stepped in, contributing to the vast bulk of new global oil supply since 2005—71.4 percent of it to be exact.

The rest of the international oil market is dominated by Russia and Iraq, with other members of the OPEC (Organization of the Petroleum Exporting Countries) consortium of Middle East oil producers overall contributing just 22 percent of total supply, barely enough to cover losses from countries whose production has been declining.

A bubble ready to burst

The report warns that global production growth may therefore soon stall due to the dodgy debt-driven economics of the US shale industry. While Saudi Arabia will no longer be able to ramp up production much, the US shale oil sector could be on the brink of unravelling due to massive unrepayable debts, declining production rates, and poor well quality.

While the productivity of shale oil wells has increased at first glance, the report says this has come at the expense of “observable decreases in real productivity.” Increasing production “has come at a cost of increased lateral drilling per hole and the increase of water, chemical, and proppant.”

So while average production from fracked US shale wells increased between 2010 and 2018 by 28 percent, in the same period water injection, chemical and proppant use increased by 118 percent. The report says this indicates the huge spike in extraction costs.

Meanwhile, the report warns that most shale oil companies experience negative cash flow due to mounting unrepayable debt levels. As a result, we are fast approaching a point where investors are losing faith in the industry, which is now running out of money to sustain continued operations amidst declining profitability.

The exact date of a peak in US shale oil production is difficult to estimate, but the report concludes that production “is likely to be in terminal decline within the next 5 to 10 years, with the possibility that it has already peaked due to contraction of upstream capital investment.”

If that happens, it would mean we can no longer rely on the principal source of oil behind global production growth.

According to World Oil, two major oil industry service providers, Halliburton and Schlumberger, already believe that despite production reaching record highs, US shale oil fracking has already peaked and is in a period of sustained contraction.

A global peak?

The report is heavily critical of conventional peak oil theory, which predicted that global oil production would peak and decline shortly after 2000 due to ‘below-ground’ geological depletion, leading to permanently spiralling oil prices. The approach is described as “too simplistic” for overlooking “the complex and dynamic interactions of a number of issues around the oil industry (most notably geopolitical actions and the effect on Quantitative Easing).”

But the report also dismisses the now fashionable rejection of the entire relevance of peak oil. Although there is “plenty of oil left,” it is “increasingly expensive to access”.

The current economic system cannot sustain oil prices above $100 a barrel and keep growing, while producers for most new fields cannot sustain profits at prices as low as $45 a barrel without more borrowing.

According to Dr. Michaux, the global economy is therefore caught between a rock and a hard place. “Oil prices will be held low for a time,” he explained. “The problem is all consumers at all scales in all sectors are saturated with debt. Costs are going up, while the ability to generate wealth is contracting.”

This means that although the oil industry can’t cope with the lower prices, the global economy can’t cope with high prices. “I now see peak oil as being defined by a contracting window between an oil price high enough to keep producers in business and a price low enough for consumers to access oil derived goods and services,” said Michaux.

As a result of this combination of geological challenges and above-ground market constraints, Michaux’s government study warns that a global peak in total oil production is either “imminent” over the next few years, or may already have happened, possibly in November 2018. But we will only be able to fully confirm the peak around five years after the fact.

More than half the world’s oil producing countries are now in decline, the report claims, with the bulk of new production concentrated among just six main producers. When looking specifically at crude oil operations, the report says, about 81 percent of the world’s oil fields are now in decline, with the rate of discoveries of new oil fields declining to record lows.

By 2040, this means the world would need to replace over four times the current crude oil output of Saudi Arabia, just to keep output consistently flat.

Rather than global oil supply being constrained simply by the volume of oil deposits in the ground, as conventional peak oil theory assumes, the report says that it is instead constrained “by the number of economically viable projects available to be developed at a low enough production cost.”

Currently, the bulk of continued expansion in global supply is dependent on the United States. With the US shale sector on the verge of breakdown, the report warns that the “window of oil market viability is closing, which suggests the resumption of the 2008 correction will be soon.”

According to Dr. Hagens, this new analysis confirms that “‘peak oil’ is now really about ‘peak credit.’ If we can somehow continue to keep growing our financial claims to allow us access to future energy today, we’ll continue to be able to extract the next most costly tranche of hydrocarbons.”

But as debt levels are becoming dangerously unstable, this can only continue for so long; and only pushes the problem forward, making future oil decline rates steeper. Eventually the situation will become unworkable. He argues that it’s the “global credit orgy of the last 50 years,” but especially since 2008, that has kept the growth engine growing.

I asked Hagens whether he agrees with the report’s verdict that an overall peak could therefore be imminent. “I find it extremely plausible,” he said.

Global reset and the need for a new industrial paradigm

Because we are “using finance to paper over this biophysical gap”, he added, this will eventually “lead to a deflationary pulse in global economies.”

Levels of global debt are now thoroughly out of control, the report says—finding that US government debt creation has been approximately twice the rate of economic growth over the last 40 years. By increasing the volume of debt, countries were able to maintain growth as costs of energy went up. As a result, most national economies now have debt to GDP ratio exceeding 90 percent, which means that they need to go further into debt just to keep their economies functioning while maintaining debt repayments.

Growth in GDP therefore amounts to a “debt fueled mirage,” according to the report. As we have not properly planned for the possible phasing out of fossil fuel energy, it is entirely possible that as energy systems, oil in particular, come to contract, we could witness “the peak of industrial output per capita sometime in the next few years.”

As oil markets become unreliable, the report urges, the world needs to develop “an entirely new energy system based around an entirely different paradigm.” The report calls on technical professionals and policymakers to focus on how “to create a high technology society” based on a smaller clean energy footprint that isn’t reliant on endless material growth. “If this is not achieved, the alternative is the degradation (and fragmentation) of the current industrial ecosystem.”

In short, this means we need an extremely rapid shift to renewables, along with a total reorganization of how our societies function for the coming post-fossil fuels world.

All major industrial nations need to “work together in how to transition away from oil and fossil fuels in general,” the report concludes, warning: “The alternative is conflict.” Industrial civilization will need to “evolve” into “a lower energy consumption profile with less complexity,” based on a “complete restructure of the demand side of energy requirements.”

Right now, though, “no one is preparing for this,” said Hagens. “Not only are we speeding, but we are wearing energy blind-folds at the same time. But the momentum of our current system forces us to have conversations about a bigger system not a smaller one—so the correct and valid plans and blueprints are not discussed… It is a perfect storm—and when the waters recede we are going to have smaller, simpler and more local, regional economies.”

 

 

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Edited by Tomasz
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I don’t buy the lack of affordable oil. First you have to define affordable. I think the world consumers and producers will be fine in the $55-$70 range. 
OPEC by choice will hold back production looking for a higher price and it worked for awhile. But if they had put enough oil in the market during those six years of high prices the phenomenon of fracking wouldn’t have taken place. They just ain’t to smart and got burned. Plenty of oil out there and as prices get higher the rigs roll out. Simple capitalism 101.

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“The era of cheap & abundant energy is long gone...." Perhaps for Finland. Just about everywhere else is swimming in cheap energy.

The renewable energy issue is mostly about storage right now, and I'm seeing major price reductions in storage.Utility solar is below $1 per watt. This is 'break even' with gas combined-cycle. The question mostly is whether the energy can be stored for use later.

The paper referenced above is simply wrong, and evidently not very well thought out.

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This is a terrific analysis, and I am completely on board with it except for the demographic blindness of the demand side estimates and the attribution of the driving forces. 

The phenomenon was not global per se, but made up entirely of China's economic rise fueled by its credit policy, and being mirrored on the other side of the global financial system. .

Competition from China, where employment is not a matter of providing a positive cash flow nor a return on investment, has reduced the spread between the value of final goods and services vs. the commodity inputs globally, since they increased supply with no cost funding and discounted labor, while far increasing demand for commodities, and thus their prices. This loss making enterprise of China, was the contributor of ALL of the Debt Bubble differential. The US debt contribution is nothing at all but for the last two years, as all of it was the cumulative rolling over of interest, as it has been since the 1970s. Through China's creation of a money supply and reserve bubble greater than that of the combined US Japan and Europe, but also its use of its reserve and commodity acquisition strategy within the Eurodollar banking system, it inflated everyone else as it exported its credit bubble. It removed reserve assets from the bond market while supplying cash from its trade surplus, thus acting as a money printing central bank for dollars, then pledged these assets against commodity purchase agreements, thus providing more liquidity to the repo eligible securities market, and bidding up commodity futures which created further reserves in commodity (energy) producing countries' balance sheets.. Thus China is the big question and the biggest of several answers.

First, 45-48% of China is fixed capital formation.. Meaning steel concrete and lots of oil for transporting them round the country. On the private side it is largely housing and retail//commercial/office space, and extensive infrastructure buildout on the government side. They are now fully housed up and fully supplied with retail and office space (20-25% vacant), to allow half the remaining rural population to urbanize  - which can't happen because their labor productivity in agriculture has stalled for most of the last decade, meaning that any further migration will reduce food supplies.  Thus the current Chinese economy is adding marginally useless capital with no likelihood of any return. It is funded largely by a constant stream of private household investment in real estate due to cultural and historical preferences for capital preservation. Upon undergoing a crisis, China will stop this activity. It is responsible for roughly 6-7 Mob/d of its demand. Most of it, say 4 Mob/d of oil demand will not ever return. China's demand leading demographic group has been shrinking since 2010, and the rate of shrinkage will accelerate.into the future. A 40% drop by 2030. In total, a likely fall in oil demand correlating to that alone would be 6 Mob/d.

Second, The energy demand of Europe Korea and Japan does not look much better, Its own Millennials are a small bump compared to the near retirement and retiring baby boomers. Their shrinking populations mean there is no need to expand infrastructure nor housing and office retail and commercial space. Only renewable energy infrastructure is necessary, and is rapidly coming online already. It needs to continue elevated oil consumption for a few more years purely in order to bring online more renewables and take EVs from the drawing board to the road. So another decade of maintained oil consumption at the most. Then a rapid decline due to demand decline due to demographics, about 20-30% to 2040.

Finally, sectoral energy composition shift. 25% drop in oil demand due to a shift to NG/LNG for shipping fuel and chemical feedstocks. Thus freeing up 25 Mob/d over 2 decades.

Now for the punchline. The decline of China's competitiveness in industrial labor markets due to its shrinking labor pool will raise the value of finished goods and services relative to commodity inputs. This will increase unit gross margins of businesses and along with it per capita labor income in OECD and NICs. This is not a plain linear relationship.It adds on both ends and allows expanded volumes as demographics dictate.. 

We can see a preview of this in the US where oil and gas prices dropped far more than they had in the rest of the world. This results in an enormous rise in cash flows of business and labor and is reflected in stock market values. As is the low interest rates due to the global retirement savings glut of baby boomers everywhere, including China.This price structure change is stronger in the US than it is in EU+Japan+NICs. because (1) that is where cheap oil and gas are, (2) it is where there is a large Millennial population just entering it huge consumption escalation age, something that has  no equivalents in developed markets nor China.

This chart shows various broad US stock market indices from the Fed and Wilshire as they follow a "Fed model" type calculation using spreads of final prices to commodities and proportional to industrial production and infinitely discounted by the Baa interest rate (used preferentially since central banks don't buy it and it isn't used in repos). 

fredgraph.png?g=pVNZ

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I believe the problem we have in the future is declining energy demand. In Oil and coal through 2040, then in NG from 2030 onwards as the infrastructure to move and store renewable energy is built up. 

We have passed Peak Babies globally, and passed it in OECD + China, over 40 years ago if not longer. There is no further source of demand for energy due to this as it means infrastructure demand and housing demand and autos will move to maintenance and replacement only. 

I should point out that Millennial demand from the US will be such a roller coaster explosive event that EU Japan and China will just stand agape at it - assuming that oil and gas will remain plentiful in the US for another decade, as demand outside the US drops.

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I am mixed on it. A great read. Some aspects are true. Alot is speculative and assumed.  I'd assume (openly) if we run out of profitable oil .... we will use natural gas. A company I invest in called Painted Pony (currently a bag holder) has 60 years worth that's profitable at 2.39$ CAD /Mcf. So you get a CNG vehicle that's a hybrid and the tank isnt massive for transport until electric is viable. And LNG the rest globally till green tech can fill the gaps. I think the author is just trying to articulate that oil price spikes due to the cyclical nature of things causing recessions. We use liquid fuel because it's safe, energy dense, cheap, transportable and were "tooled" for it. That all can change and we can adapt and will after some pain. But to say were running out or cant afford 100$ oil is questionable and if it were the case then let USA take and develop Venezuela and Alberta (joking) while devaluing their currency for 2nd + 3rd world buyers. 

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(edited)

3 hours ago, Boat said:

I don’t buy the lack of affordable oil. First you have to define affordable. I think the world consumers and producers will be fine in the $55-$70 range. 
OPEC by choice will hold back production looking for a higher price and it worked for awhile. But if they had put enough oil in the market during those six years of high prices the phenomenon of fracking wouldn’t have taken place. They just ain’t to smart and got burned. Plenty of oil out there and as prices get higher the rigs roll out. Simple capitalism 101.

"Fossil fuels" may cost more than they should if renewables are forced on the people in any given country. You can already see it in Europe and Canada. To a lesser extent in some states such as California and New York. New England is paying higher prices because of lack of pipelines for natural gas due to New York's policies.

Edited by ronwagn
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(edited)

On 2/5/2020 at 7:20 PM, Meredith Poor said:

“The era of cheap & abundant energy is long gone...." Perhaps for Finland. Just about everywhere else is swimming in cheap energy.

The renewable energy issue is mostly about storage right now, and I'm seeing major price reductions in storage.Utility solar is below $1 per watt. This is 'break even' with gas combined-cycle. The question mostly is whether the energy can be stored for use later.

The paper referenced above is simply wrong, and evidently not very well thought out.

I think it is simply out of date. The thorough review they speak of must have started in 2017 so they had to rush an update and it came a bit off of reality. 

Added:

I was thinking that the appropriate analysis would be "the dawn of the free energy era" at least where solar and wind are viable without huge transmission infrastructure. 

Edited by 0R0
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2 hours ago, 0R0 said:

I believe the problem we have in the future is declining energy demand. In Oil and coal through 2040, then in NG from 2030 onwards as the infrastructure to move and store renewable energy is built up. 

We have passed Peak Babies globally, and passed it in OECD + China, over 40 years ago if not longer. There is no further source of demand for energy due to this as it means infrastructure demand and housing demand and autos will move to maintenance and replacement only. 

I should point out that Millennial demand from the US will be such a roller coaster explosive event that EU Japan and China will just stand agape at it - assuming that oil and gas will remain plentiful in the US for another decade, as demand outside the US drops.

Do you think China would ever accept immigrants from neighboring Asian countries?

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2 minutes ago, ronwagn said:

Do you think China would ever accept immigrants from neighboring Asian countries?

They are still working on ethnic cleansing of Uigurs (sp?) and Tibetans, so guess what I think.

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6 hours ago, Tomasz said:

“The era of cheap & abundant energy is long gone… Money supply & debt have grown faster than real economy. Debt saturation & paralysis is now a very real risk, requiring a global scale reset.”"We have entered a new era of expensive [unconventional] energy that is likely to trigger a long-term economic contraction."

Report containing 510  pages is published by the Geological Survey of Finland (GTK), which operates under the government’s Ministry of Economic Affairs. GTK is currently the European Commission’s lead coordinator of the EU’s ProMine project, its flagship mineral resources database and modeling system.

http://tupa.gtk.fi/raportti/arkisto/70_2019.pdf

 

EQBColuWkAIY5Wk.png

Wrong

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2 hours ago, 0R0 said:

This is a terrific analysis, and I am completely on board with it except for the demographic blindness of the demand side estimates and the attribution of the driving forces. 

The phenomenon was not global per se, but made up entirely of China's economic rise fueled by its credit policy, and being mirrored on the other side of the global financial system. .

Competition from China, where employment is not a matter of providing a positive cash flow nor a return on investment, has reduced the spread between the value of final goods and services vs. the commodity inputs globally, since they increased supply with no cost funding and discounted labor, while far increasing demand for commodities, and thus their prices. This loss making enterprise of China, was the contributor of ALL of the Debt Bubble differential. The US debt contribution is nothing at all but for the last two years, as all of it was the cumulative rolling over of interest, as it has been since the 1970s. Through China's creation of a money supply and reserve bubble greater than that of the combined US Japan and Europe, but also its use of its reserve and commodity acquisition strategy within the Eurodollar banking system, it inflated everyone else as it exported its credit bubble. It removed reserve assets from the bond market while supplying cash from its trade surplus, thus acting as a money printing central bank for dollars, then pledged these assets against commodity purchase agreements, thus providing more liquidity to the repo eligible securities market, and bidding up commodity futures which created further reserves in commodity (energy) producing countries' balance sheets.. Thus China is the big question and the biggest of several answers.

First, 45-48% of China is fixed capital formation.. Meaning steel concrete and lots of oil for transporting them round the country. On the private side it is largely housing and retail//commercial/office space, and extensive infrastructure buildout on the government side. They are now fully housed up and fully supplied with retail and office space (20-25% vacant), to allow half the remaining rural population to urbanize  - which can't happen because their labor productivity in agriculture has stalled for most of the last decade, meaning that any further migration will reduce food supplies.  Thus the current Chinese economy is adding marginally useless capital with no likelihood of any return. It is funded largely by a constant stream of private household investment in real estate due to cultural and historical preferences for capital preservation. Upon undergoing a crisis, China will stop this activity. It is responsible for roughly 6-7 Mob/d of its demand. Most of it, say 4 Mob/d of oil demand will not ever return. China's demand leading demographic group has been shrinking since 2010, and the rate of shrinkage will accelerate.into the future. A 40% drop by 2030. In total, a likely fall in oil demand correlating to that alone would be 6 Mob/d.

Second, The energy demand of Europe Korea and Japan does not look much better, Its own Millennials are a small bump compared to the near retirement and retiring baby boomers. Their shrinking populations mean there is no need to expand infrastructure nor housing and office retail and commercial space. Only renewable energy infrastructure is necessary, and is rapidly coming online already. It needs to continue elevated oil consumption for a few more years purely in order to bring online more renewables and take EVs from the drawing board to the road. So another decade of maintained oil consumption at the most. Then a rapid decline due to demand decline due to demographics, about 20-30% to 2040.

Finally, sectoral energy composition shift. 25% drop in oil demand due to a shift to NG/LNG for shipping fuel and chemical feedstocks. Thus freeing up 25 Mob/d over 2 decades.

Now for the punchline. The decline of China's competitiveness in industrial labor markets due to its shrinking labor pool will raise the value of finished goods and services relative to commodity inputs. This will increase unit gross margins of businesses and along with it per capita labor income in OECD and NICs. This is not a plain linear relationship.It adds on both ends and allows expanded volumes as demographics dictate.. 

We can see a preview of this in the US where oil and gas prices dropped far more than they had in the rest of the world. This results in an enormous rise in cash flows of business and labor and is reflected in stock market values. As is the low interest rates due to the global retirement savings glut of baby boomers everywhere, including China.This price structure change is stronger in the US than it is in EU+Japan+NICs. because (1) that is where cheap oil and gas are, (2) it is where there is a large Millennial population just entering it huge consumption escalation age, something that has  no equivalents in developed markets nor China.

This chart shows various broad US stock market indices from the Fed and Wilshire as they follow a "Fed model" type calculation using spreads of final prices to commodities and proportional to industrial production and infinitely discounted by the Baa interest rate (used preferentially since central banks don't buy it and it isn't used in repos). 

fredgraph.png?g=pVNZ

Where did you get such a notion.

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6 hours ago, Tomasz said:

“The era of cheap & abundant energy is long gone… Money supply & debt have grown faster than real economy. Debt saturation & paralysis is now a very real risk, requiring a global scale reset.”"We have entered a new era of expensive [unconventional] energy that is likely to trigger a long-term economic contraction."

Report containing 510  pages is published by the Geological Survey of Finland (GTK), which operates under the government’s Ministry of Economic Affairs. GTK is currently the European Commission’s lead coordinator of the EU’s ProMine project, its flagship mineral resources database and modeling system.

http://tupa.gtk.fi/raportti/arkisto/70_2019.pdf

 

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?

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1 minute ago, BLA said:

Where did you get such a notion.

There are a few "notions" presented.

Which are you referring to?

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And yet, we’d had (apparently) a huge oil surplus/over-supply problem for the past 5 years.

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2 hours ago, ronwagn said:

"Fossil fuels" may cost more than they should if renewables are forced on the people in any given country. You can already see it in Europe and Canada. To a lesser extent in some states such as California and New York. New England is paying higher prices because of lack of pipelines for natural gas due to New York's policies.

We had .45c/L tax on gasoline now the liberals want carbon tax so it was 5c more now it's at 11c and by 2022 it'll be 20c .... so 65ish cents per liter. Right now my area is very cheap for fuel at 1.05L so a gallon/3.785L so that's 3.97$ cad per gallon.  

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There is a tradeoff between paying a premium price and dealing with the high volatility that oil has had over the last few years.  Expensive oil contributed to the financial crisis as countries tried to offset the price through borrowing even as banks were lending more to consumers. 

Oil is still an overweighted risk to the world economy.  In the next 10 years oil will have significant challenge to its dominance and it will be interesting to see what the new balance of energy sources will be.

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15 hours ago, 0R0 said:

This is a terrific analysis, and I am completely on board with it except for the demographic blindness of the demand side estimates and the attribution of the driving forces. 

The phenomenon was not global per se, but made up entirely of China's economic rise fueled by its credit policy, and being mirrored on the other side of the global financial system. .

Competition from China, where employment is not a matter of providing a positive cash flow nor a return on investment, has reduced the spread between the value of final goods and services vs. the commodity inputs globally, since they increased supply with no cost funding and discounted labor, while far increasing demand for commodities, and thus their prices. This loss making enterprise of China, was the contributor of ALL of the Debt Bubble differential. The US debt contribution is nothing at all but for the last two years, as all of it was the cumulative rolling over of interest, as it has been since the 1970s. Through China's creation of a money supply and reserve bubble greater than that of the combined US Japan and Europe, but also its use of its reserve and commodity acquisition strategy within the Eurodollar banking system, it inflated everyone else as it exported its credit bubble. It removed reserve assets from the bond market while supplying cash from its trade surplus, thus acting as a money printing central bank for dollars, then pledged these assets against commodity purchase agreements, thus providing more liquidity to the repo eligible securities market, and bidding up commodity futures which created further reserves in commodity (energy) producing countries' balance sheets.. Thus China is the big question and the biggest of several answers.

First, 45-48% of China is fixed capital formation.. Meaning steel concrete and lots of oil for transporting them round the country. On the private side it is largely housing and retail//commercial/office space, and extensive infrastructure buildout on the government side. They are now fully housed up and fully supplied with retail and office space (20-25% vacant), to allow half the remaining rural population to urbanize  - which can't happen because their labor productivity in agriculture has stalled for most of the last decade, meaning that any further migration will reduce food supplies.  Thus the current Chinese economy is adding marginally useless capital with no likelihood of any return. It is funded largely by a constant stream of private household investment in real estate due to cultural and historical preferences for capital preservation. Upon undergoing a crisis, China will stop this activity. It is responsible for roughly 6-7 Mob/d of its demand. Most of it, say 4 Mob/d of oil demand will not ever return. China's demand leading demographic group has been shrinking since 2010, and the rate of shrinkage will accelerate.into the future. A 40% drop by 2030. In total, a likely fall in oil demand correlating to that alone would be 6 Mob/d.

Second, The energy demand of Europe Korea and Japan does not look much better, Its own Millennials are a small bump compared to the near retirement and retiring baby boomers. Their shrinking populations mean there is no need to expand infrastructure nor housing and office retail and commercial space. Only renewable energy infrastructure is necessary, and is rapidly coming online already. It needs to continue elevated oil consumption for a few more years purely in order to bring online more renewables and take EVs from the drawing board to the road. So another decade of maintained oil consumption at the most. Then a rapid decline due to demand decline due to demographics, about 20-30% to 2040.

Finally, sectoral energy composition shift. 25% drop in oil demand due to a shift to NG/LNG for shipping fuel and chemical feedstocks. Thus freeing up 25 Mob/d over 2 decades.

Now for the punchline. The decline of China's competitiveness in industrial labor markets due to its shrinking labor pool will raise the value of finished goods and services relative to commodity inputs. This will increase unit gross margins of businesses and along with it per capita labor income in OECD and NICs. This is not a plain linear relationship.It adds on both ends and allows expanded volumes as demographics dictate.. 

We can see a preview of this in the US where oil and gas prices dropped far more than they had in the rest of the world. This results in an enormous rise in cash flows of business and labor and is reflected in stock market values. As is the low interest rates due to the global retirement savings glut of baby boomers everywhere, including China.This price structure change is stronger in the US than it is in EU+Japan+NICs. because (1) that is where cheap oil and gas are, (2) it is where there is a large Millennial population just entering it huge consumption escalation age, something that has  no equivalents in developed markets nor China.

This chart shows various broad US stock market indices from the Fed and Wilshire as they follow a "Fed model" type calculation using spreads of final prices to commodities and proportional to industrial production and infinitely discounted by the Baa interest rate (used preferentially since central banks don't buy it and it isn't used in repos). 

fredgraph.png?g=pVNZ

As usual Mr @0R0 I'm impressed with your insight. I'm sorry you're too deep for @BLAbut please continue. I can't believe you're an economist because they're inevitably wrong from consuming so much of their own bull shiff. You seem to have a clear eyed view of what's happening, which I for one appreciate. 

Elsewhere I started a thread about economics but I don't think you came by to visit. We're in alignment on this but I can see how others, swallowing the usual BS they've been fed can't see this particular Forest for the trees. 

As for prices, recalculate today's oil prices accounting for inflation, and in 1960's money we're about the same, roughly $2.50 a barrel. The contribution of fossil fuel to the world's economy is about 25%, but the benefit to the fossil fuel industry is peanuts. It's like farmers barely staying solvent to produce wheat for $2/bushel while a loaf of bread goes for $5. The goods and services made possible by fossil fuels has multiple multiplier effects on the world economy. 

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image.png.8972619200f059eba4df20cd027d34f0.png

The problem might not lie in the costs of exploration but if we can have this kind of leader again??

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(edited)

18 hours ago, Meredith Poor said:

“The era of cheap & abundant energy is long gone...." Perhaps for Finland. Just about everywhere else is swimming in cheap energy.

The renewable energy issue is mostly about storage right now, and I'm seeing major price reductions in storage.Utility solar is below $1 per watt. This is 'break even' with gas combined-cycle. The question mostly is whether the energy can be stored for use later.

The paper referenced above is simply wrong, and evidently not very well thought out.

Alright Meredith. I'd like to see where you find $1 per installed Watt. I'd also like to know what the power company is charging per industrial kilowatt hour, and how long it will take them to pay off their solar panels. 

Also, let's keep it to the Western world please. Saying that China can produce solar panels for $1 a watt is equivalent to saying that precious metals from the Congo are cost effective because for some reason it's cheap to extract there

Then give me your opinion on this: Would using solar energy to create hydrogen and to power the haber bosch process be a profitable business opportunity? I had a great big discussion with Nick W on this subject yesterday. The results were very pleasing for me. 

Edited by KeyboardWarrior
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2 hours ago, specinho said:

The problem might not lie in the costs of exploration but if we can have this kind of leader again??

The only problem with Socialism is when you run out of other people's money

That's a pretty big problem though…

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4 hours ago, KeyboardWarrior said:

Alright Meredith. I'd like to see where you find $1 per installed Watt. I'd also like to know what the power company is charging per industrial kilowatt hour, and how long it will take them to pay off their solar panels. 

Also, let's keep it to the Western world please. Saying that China can produce solar panels for $1 a watt is equivalent to saying that precious metals from the Congo are cost effective because for some reason it's cheap to extract there

Then give me your opinion on this: Would using solar energy to create hydrogen and to power the haber bosch process be a profitable business opportunity? I had a great big discussion with Nick W on this subject yesterday. The results were very pleasing for me. 

https://www.pv-magazine.com/2017/06/12/u-s-utility-scale-solar-falls-below-us1-per-watt-w-charts/

Note that this is dated 2017.

https://www.seia.org/research-resources/solar-market-insight-report-2018-q4

Scroll through this a bit and you can get a utility scale price for 2018, which is in the area of 97 cents per watt.

China is producing panels in the range of 12 cents to 40 cents per watt. The $1 per watt number is for a fully installed farm in the US equipped by US vendors (First Solar being a typical manufacturer and project developer).

Industrial rates tend to be negotiated, usually because of various cut-off terms. Assured power terms are generally higher cost than 'contingency shutoff', meaning that the power company can turn off a site in unusual demand situations. Many cold storage warehouses seek the absolute cheapest power since they have to have backup generators anyway.

If a commercial rate is 5 cents per KWH, then each watt of panel capacity has to generate 20 Kwh to pay back the $1 cost. A watt of capacity generally produces 1.8 Kwh per year (5 hours x 360 days). 20 / 1.8 = 11 years.

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(edited)

13 minutes ago, Meredith Poor said:

https://www.pv-magazine.com/2017/06/12/u-s-utility-scale-solar-falls-below-us1-per-watt-w-charts/

Note that this is dated 2017.

https://www.seia.org/research-resources/solar-market-insight-report-2018-q4

Scroll through this a bit and you can get a utility scale price for 2018, which is in the area of 97 cents per watt.

China is producing panels in the range of 12 cents to 40 cents per watt. The $1 per watt number is for a fully installed farm in the US equipped by US vendors (First Solar being a typical manufacturer and project developer).

Industrial rates tend to be negotiated, usually because of various cut-off terms. Assured power terms are generally higher cost than 'contingency shutoff', meaning that the power company can turn off a site in unusual demand situations. Many cold storage warehouses seek the absolute cheapest power since they have to have backup generators anyway.

If a commercial rate is 5 cents per KWH, then each watt of panel capacity has to generate 20 Kwh to pay back the $1 cost. A watt of capacity generally produces 1.8 Kwh per year (5 hours x 360 days). 20 / 1.8 = 11 years.

Alright, definitely doesn't work for Haber-Bosch, the chloro-alkali industry, or, and I'm almost certain even without having done the math for this one, that it wouldn't work for the cement industry. I think I'll go do some math on the paper industry too. 

You can get away with residential use, but these industries would need rates slashed by 75% before we can even talk about possibility. 

Renewable ammonia: Approx 20 MW/h per metric ton

Renewable sodium hydroxide: 1 ECU -> approx 7 MW/h

Edited by KeyboardWarrior
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Paper needs about 3 MW/h per ton. If the industrial rate is 5 cents per kW/h, then we'll spend $50 on electric power from a renewable source. Paper sells for an average of $10 a ton. 

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If anyone is really interested look up the TOTAL DEBT of all the Countries of the World, The reset is either going to be a Global Pandemic ( Check any newspaper ) or a Global War, Money as we know it is no longer real, Yes you can go to McDonalds and still buy a 1/4 pounder for about 3 bucks but The Globalist that want a True Global Economy run buy the idiots of The UN or The IMF and World Bank and have been pushing that agenda to the end of Sovereign Nation’s. Want to fight Globalization and the small goup of people behind it look to Davos each year. These are the people behind the curtain that want to control everything from the top down world wide....

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