Sunday, July 27, 2014

Why doesn't the 'long emergency' feel like an emergency?

In 2006 when James Howard Kunstler published his breakthrough book The Long Emergency, the next two years seemed to vindicate his warning that the oil age was coming to an end with perilous consequences. Oil soared to $147 a barrel in mid-2008. A few analysts suggested that it was headed for $200; but that was not to be. By autumn the stock market had collapsed and with it the world economy. Oil, too, then collapsed, trading in the mid-$30 range by December as demand for oil fell off a cliff with the economy. It seemed for months that the world was headed for an economic depression.

But extraordinary stimulative spending by governments around the world and emergency measures by central banks reversed the trend and led to a weak, but extended recovery of sorts that lasts to this day (though not for everyone--just ask the Greeks).

Oil prices have rebounded and have remained at or near record levels for more than three years when measured by the average daily price of the world benchmark Brent Crude. That high price (higher on average than the year of the spike) is holding back economic growth. It is creating a seeming puzzle for economic policymakers who don't understand why their extraordinary measures have not led to extraordinary growth. They are blind to the central role of energy and particularly oil in the economy.

Despite the so-called recovery, much of Europe remains mired in low or no growth, lingering on the edge of a deflationary spiral. Germany is the one bright spot; prospects for France continue to darken. In the United States jobs are only now starting to return to previous levels almost five years after a slow and laborious climb off the bottom of the so-called Great Recession.

Today, governments of some of the world's largest nations are still running extraordinarily high deficits, though these have come down as the world has inched its way out of the recession.

What appears to be masking the ongoing emergency is the rise in stock and bond markets (which has disproportionately benefited the rich who hold the most stocks and bonds). The disconnect between the still sluggish economy and the stock market which keeps hitting new highs is one indication that dangers lurk in the world economy.

Retirees and others who are risk-averse have been getting virtually no interest on their money in the bank, interest that many rely on to live. For five years the world's central banks have maintained ultra-low interest rates designed to goose the economy. This policy has forced these risk-averse investors out of their comfort zone and into the stock and bond markets to obtain income and a chance at growth. Such markets, of course, carry far more risk than bank CDs.

The people at the top and those with substantial retirement investments are doing okay again, but do not understand the precariousness of markets which are now totally driven by government and central bank policy--policy that will inevitably shift or, if unchanged, will stoke the world's speculative fever to such a degree that no intervention will be able to prevent a financial crash.

Perhaps another reason that the long emergency we have entered does not seem like one is that some emergency measures have morphed into permanent fixtures of society. The Bank of England has held its key lending rate at 0.5 percent since 2009, the lowest since the opening of the bank in 1694. The projected U.S. federal deficit of $492 billion for 2014--which previously would have provoked sharp public debate about the ruin of government finances--today seems unnoteworthy when compared to the four straight $1 trillion plus deficits from 2009 to 2012. The abnormal is becoming normal.

Analyst Doug Noland at first didn't believe that governments around the world would mortgage the future of their peoples to such an extent to protect and enrich the financial class in the aftermath of the 2008 crisis. Eventually, he dubbed the phenomenon the "government finance bubble." He expects it to be the largest and final bubble of a series occurring in the last 30 years. At the end there will be no Bank of Mars to bail us out when the government finance bubble collapses.

On the energy front, new hydraulic fracturing technology combined with horizontal drilling is being touted as the answer to high oil prices. But oil prices remain stubbornly elevated. And, the technology itself is designed to harvest oil from shale layers thousands of feet below conventional reservoirs, layers which are far more difficult and expensive to exploit. In a way, our extraction of shale-based oil should be considered an emergency measure, one designed to forestall a decline in world oil production and one that would never have been taken if the easy-to-get oil hadn't already been gotten.

Likewise, attempts to exploit oil under the Arctic Ocean (so far unsuccessful) are opening a new front in the era of "extreme oil" and should also be classified as emergency measures.

But the public and policymakers generally do not view these developments in oil exploration with concern. On the contrary such efforts are touted as evidence of humankind's inevitable advance through clever manipulation of the environment using technology. It is just this idea of inevitability which holds the public mind in thrall regarding the economy with a promise that conditions will return to normal sometime soon--normal being defined down to include all sorts of emergency measures.

Meanwhile, the rampage of an itinerant army of vengeful youths in Syria and Iraq intent on building a new caliphate and the suddenly shifting borders of The Ukraine and Russia (accompanied by the downing of a civilian airliner by belligerents) seems to trouble the public elsewhere very little. Regarding the Middle East few are saying out loud that oil and water are among the driving forces of intensified conflict that threatens to make current borders obsolete.

Joining in the mess are Palestinians and Israelis who are once again in a hot war that seems to draw yawns from the rest of the world populace.

As long as we ignore the role of climate change and resource and energy depletion, we can delude ourselves that somehow things will return to the way they used to be--before the long emergency began--that political or ethnic factors are the main problems and that it has ever been thus! So, we tell ourselves not to worry too much since these problems are really local or regional; as long as we can stay out of the way, we think we can safely ignore them.

But, of course, we can't because the world is now one global system dependent on critical resources coming from the very areas affected by conflict--oil, of course, in the Middle East and natural gas from Russia upon which Europe depends.

Is all of this happening too slowly to be considered an emergency? Emergencies generally make obvious the need for immediate and decisive action. Some people do indeed perceive that swift action is needed to address urgent energy and sustainability issues. But, it is also true that we will need decades-long engagement with such issues if we as a species are to navigate the path to a successful transition to a renewable energy economy that also conserves the soil, the water, the climate and ultimately us. Hence, the long emergency.

But in order to embrace such a worldview, most people would have to give up the supposed comfort offered by the financial bubble of the last generation, a bubble made possible by cheap fossil fuels, especially oil. It seemed as if the public might let go of this fossil-fueled fantasy after 2008. But because of the extraordinary financial measures deployed in an attempt to return us to business-as-usual, the global economic and financial system has been revived just enough to allow us to engage in a few more years of fantasizing--until our cumulative debts to nature and to one another catch up with 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, July 20, 2014

Taking a short break--no post his week

I'm taking a short break. I expect to post again on Sunday, July 27.

Sunday, July 13, 2014

Orwellian Newspeak and the oil industry's fake abundance story

When what you are saying is so obviously at odds with the plain truth, it is useful to choose your words carefully to obscure this fact. This was the strategy of the Ministry of Truth, the propaganda arm of the authoritarian government depicted in George Orwell's novel 1984. The altered language was called Newspeak, a variant of standard English.

The oil industry's fake abundance story is so full of verbal legerdemain that it has become a sort of lexicon of Newspeak for oil. The public relations firms and fake think tanks behind this Newspeak have already achieved a notable goal, one styled as "doublethink" in Orwell's 1984. In an afterword to the edition I have social psychologist Erich Fromm explains the essence of doublethink: "[I]n a successful manipulation of the mind the person is no longer saying the opposite of what he thinks, but he thinks the opposite of what it true."

We now have nearly an entire population in the United States and nearly an entire media establishment that believes that oil is abundant--not because of the objective facts, but because of the oil industry's highly successful public relations campaign, a campaign that is still underway. The reason it is still underway is that it is essential to repeat the fake abundance story again and again in order to drown out any possibility that contrary facts will make their way into the public mind.

Just to assure you that there are contrary facts, let me list two key ones:

  1. Growth in world oil production (defined as crude plus lease condensate) in the eight years from the end of 1997 to the end of 2005 was 10.1 percent according to the U.S. Energy Information Administration (EIA). During the eight-year period from the end of 2005 (an important inflection point) through 2013 that growth was 3.0 percent. The dramatic slowdown in the rate of growth occurred despite the wide deployment of new technology (such as high-volume slickwater hydraulic fracturing), record average daily prices (based on the world benchmark Brent Crude) and record oil industry spending on exploration and development. All of these things would have dramatically increased production if we weren't facing limits on what is cost-effective to extract.


  2. From its secular low of $9.10 per barrel on December 10, 1998, the Brent Crude spot price has leapt to $107.51 as of the close on Friday. That's a 1,081 percent increase in the last 15 years. The average daily spot price of Brent Crude reached two successive records in 2011 ($111.26) and 2012 ($111.63) before dipping slightly in 2013 ($108.56). So far in 2014 through July 7, the average daily price has been $108.95. All this price data (except the Friday close) is available here from the EIA. The price of commodities that are abundant tend to fall, not rise sharply. The sharp rise indicates that buyers are competing vigorously for constrained supplies.

These two facts will give us a start on oil Newspeak. Those of you who have read 1984 will recall that the ruling party in the country depicted in the book has three simple slogans: War is peace, freedom is slavery and ignorance is strength. Appropriately, the Ministry of Peace wages war, the Ministry of Love oversees the internal security forces and conducts torture when necessary, and the Ministry of Truth, mentioned above, rewrites history and journalistic accounts of the past to conform with current positions of the ruling party.

When it comes to oil, however, we won't find the oil publicists saying things so obviously ridiculous as "low growth means plenty" or "high prices spell abundance." Instead, the oil PR machine has deftly ignored worldwide developments to focus only on the United States where oil production has been rising in the last several years. Had it not been rising, world production might well have begun to decline or at least stalled.

This PR machine likes to use the word "abundant" as much as possible. Yet, saying "abundant" won't change the fact that the average U.S. gasoline price for all grades has moved from a secular low of 95 cents per gallon in February 1999 to $3.75 as of July 7. That's an advance of 295 percent. For comparison inflation as calculated by the U.S. Bureau of Labor Statistics during that period was 43 percent.

Another useful oil Newspeak word is "resources." The word has a well-known meaning within the industry, namely, a preliminary estimate based on sketchy data (which, incidentally, is almost meaningless for determining the rate of flow). Outside the industry, however, most people conflate "resources" with "reserves." In this case ignorance is indeed strength, or at least it strengthens the persuasive power of the industry by keeping the public in the dark. (Reserves, by the way, are only the tiny fraction of resources that have been proven to exist by the drill bit and are economical to extract at current prices.)

The industry loves to say that the world's resources of oil are huge. But in recent years its spokespersons have shied away from using the word "reserves" since oil reserves (crude plus condensate) at the major oil companies have been falling in aggregate. And, not surprisingly, so has their so-called liquids production (which includes oil), about 12.4 percent from 2009 to 2013.

This has resulted in a series of oil Newspeak terms designed, so to speak, to put lipstick on a pig. Oil companies now report reserves as "barrels of oil-equivalent" or boe. They calculate the energy content of their natural gas reserves, convert that to its equivalent in oil and then add that number to their oil reserves. If we had to compose a slogan for this in Orwell's 1984 that is consistent with such gems as "war is peace" we might say: A gas is a liquid. But, of course, it's not. And natural gas sells for considerably less per unit of energy than oil. So, the entire picture misleads those investors who don't know how to read between the lines. It's another case where ignorance (on the part of investors) is strength for the company.

But perhaps the most audacious oil Newspeak term ever is now emerging just as the conflating of oil and natural gas reserves fails to spark enthusiasm in investors anymore. "Return on invested capital," not profits, not reserves, is the Newspeak term being marketed to investors as the proper indicator of a shrinking oil company's success. (Of course, the word "shrinking" would never be uttered by oil company representatives with proper Newspeak credentials.)

As the majors cut back on exploration and development expenses, they hope to increase their "return on invested capital." That sounds much better than saying that it has simply gotten too expensive in many places to find and extract oil. The easy stuff is gone; now only the hard-to-get, expensive stuff is left, and no one can make a profit on it or only a very meager one. How much better it sounds to investors who've been told for years that oil reserves are what to watch (and then boe) that companies are now pursuing "return on invested capital."

One bit of oil Newspeak appears almost singlehandedly to be keeping oil supplies growing even though they may not be. "Total oil supply" is being treated as interchangeable with "total liquids supply." To see what I mean, check out this page of oil statistics on the EIA website. Click on the dropdown menu for "product" which by default reads "total oil supply" and see what's actually included.

Beneath the words "total oil supply" (and sometimes "total liquids supply" in other sources) lie substances which simply cannot be sold as oil on the world market, substances such as natural gas plant liquids, condensate, and biofuels. There is also a mysterious liquid called "refinery processing gain" which conjures additional fuel volumes (but no more actual energy) because crude oil inputs expand when separated into their constituent parts during the refining process.

Without these additions to the oil supply statistics, it is a good bet that the trend in worldwide oil production would be reported as nearly flat from about 2005 onward. Despite this (or maybe because of this), both the industry and the government seemingly without embarrassment spout an oil Newspeak phrase that Orwell's Ministry of Truth might have authored: Total liquids supply is total oil supply.

Perhaps the most obviously ridiculous piece of oil Newspeak is "U.S. oil exports." Now, if I have to buy (read: import) 10 steaks from the store and I give three to you, I suppose you could say that I'm exporting my steaks to you. But, once I've eaten my steaks, if I want to replenish my supply, I must go to the store and buy some steaks again and then import those steaks into my freezer (from where I can export them to you once again, perhaps after I grill them for you).This is essentially what those in the industry who are calling for an end to the ban on U.S. oil exports are advocating.*

With just a few mouse clicks, however, any curious person could arrive at the EIA's U.S. oil import and export statistics and see that we are a long way from ever becoming a net exporter of oil. By asking the right questions, such a person might arrive at the most recent projections by the agency which have U.S. oil production peaking and then declining after 2020 at a level far below anything that would allow the country to export more than it imports. In keeping with Orwell, perhaps we could style this as "exports equal freedom." It makes about sense as what the industry is saying.

If you want to corrupt a people, corrupt the language. I'm not sure who said that, maybe me. Once it becomes impossible to say the truth with the language we have, it will ultimately be impossible for us to adapt and survive. That's almost certainly what we risk as we slide down the oil Newspeak slope unable to understand what is actually happening to global society's most critical commodity.

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*There is an argument for lifting the U.S. ban on oil exports that has to do with maximizing market efficiency, getting the right grades of oil to the refineries best suited to refine them (and thus willing to pay more for them) wherever those refineries are in world. But this isn't the argument the industry is making to the public since the effect of allowing such exports would be to raise domestic oil prices and thus lift profits for domestic oil producers, not exactly a winning argument with the American public.

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, July 06, 2014

Freedom in a full world

The Independence Day holiday in the United States has people here thinking about fireworks, parades and eating lots of barbequed meat. There will be many speeches on the gift of freedom which America helped to spread across the world. But there will be almost no introspection about what that word means.

Freedom is one of those abstract words that politicians love to use in speeches because doing so allows everyone listening to project their own meaning onto the word (and to identify the politician as someone who shares their values).

To some people freedom might mean freedom of conscience, to live by religious or moral tenets free from coercion by the state or the community. To others it might mean freedom of action to determine what course we want to take in life and to have the freedom to pursue it. But for many it has now become an amorphous rallying cry whenever patriotism is invoked--we are fighting for freedom, aren't we? But is it the freedom for each to think and act as he or she pleases no matter what?

Economist Herman Daly popularized the idea that we are living in what he calls a "full world." By this he means that the influence of humans in the biosphere has become so large that we can no longer ignore how we are changing it. Perhaps the biggest and most dangerous threat is climate change, the result of human activities that include the burning of fossil fuels, the clearing of land and the use and release of novel man-made gaseous chemicals that in some cases are many thousands of times more potent at trapping heat than carbon dioxide.

We know the world is "full" because our actions are noticeably changing the composition of the atmosphere, the oceans and the soil. The effects of our actions are now so large that they risk flipping the planet into a different climate state; are depleting presumably renewable resources such as forests and fish which can no longer replenish themselves as fast as we harvest them; and are poisoning our air, water and food all the way to the poles with made-man toxins produced by the modern chemical industry.

Here I must journey back to a time when slavery was legal and being a free man or woman had a very specific meaning. Being free meant you weren't owned by somebody else and therefore could not be treated as property. Legally sanctioned slavery no longer exists. So, what does it mean to be free now?

There are political freedoms: the right to choose our leaders, to speak our mind without fear of arrest, to be left alone by the state in our private affairs. There are economic freedoms: the right to choose one's employment, to engage in commerce with whomever we wish (even those on the other side of the globe), to invest and spend our savings as we wish, to acquire and own property including that used for business purposes. But are these economic freedoms separate from the material prosperity of the modern age, an energy-rich era which is transforming the biosphere in all its aspects?

It seems that political freedoms are possible without the specific economic conditions of our era though those freedoms had been notably absent prior to the modern age. But economic freedoms depend almost entirely on the what we can extract from the physical world and turn to our use. In a world that was not yet "full," humans could essentially take whatever they could get their hands on through ingenuity and hard work. When forests were gone in one area, humans moved onto other areas. When fishing declined in one fishery, they found another. And, while this progressive harvesting of resources sometimes had terrible local effects, it did not threaten every human nor every organism on the planet.

Now that our activities are collectively having effects at the planetary scale, we can no longer just keep moving on, harvesting ever larger quantities of resources without creating even larger effects. The economic freedoms we have enjoyed in the last 500 years are being curtailed--by nature.

So, while many rail against increasing government regulation of human affairs, and they especially rail against doing anything to about climate change, they do not seem to understand that the ultimate regulator of our affairs is nature.

My disagreement with them is not over whether humans as animals on planet Earth should be able to seek their material needs in order to live happy, healthy lives. My disagreement with them is whether nature itself is the regulator of our destiny, whether nature itself defines limits within which we must stay in order to survive and thrive as a species.

The fossil record is littered with creatures who could not adapt quickly enough to changing conditions and thus went extinct. In our case, we are the cause of the quickly changing conditions around us and thus have the power to moderate those changes. Anyone who believes otherwise is being willfully blind or cynical.

It is a cliché to say that with freedom comes responsibility. Yes, we are a free to make whatever choices we can think of and implement. But we are not free from the side effects and unintended consequences of our actions, actions which more and more have global rather than merely local effects. Just how do we take responsibility under these circumstances?

Freedom is often lost by those who do not use it wisely. In this case it is nature itself which will narrow our options as climate change reduces crop yields and alters rain patterns--producing prolonged drought in some places and heavy floods in others. It will strand some cities without water due to drought or due to lack of snowmelt in the mountains that supply them with water. It will narrow our options for nutrition as one fishery after another collapses. It will narrow our options for the treatment of disease as antibiotics--which we've overused--can no longer treat formerly trivial infections because the pathogens have become resistant.

Freedom in the modern age has been reinterpreted as the right to grow our economy and maximize our extractions from the biosphere--and ignore the future consequences for Earth's living systems in whatever we do. We have embraced this growth as the solution to practically every social ill including poverty, disease, pollution (the environmental Kuznets curve), and even overpopulation (demographic transition).

In a full world, that kind of freedom cannot last. And that means we must now find a new definition of freedom that includes the best of the modern world, particularly its political and social freedoms, while correcting the excesses of the freedoms we have enjoyed economically in a world that was previously not full.

After the partying dies down this Independence Day weekend and the fireworks are grounded, try to imagine a new definition of freedom that will allow us to thrive in a full world. If we don't devise one ourselves, nature will do it for 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.