Saturday, December 25, 2010

Where will the next one come from?

At this time of year, when many of us give and receive gifts for Christmas, it is appropriate to ask: where is the next one coming from?

As long as we have plenty of surplus energy, mainly in the form of crude oil and other fossil fuels, life may be expected to continue much as we are used to, but the decline of energy will see a decline in our standard of living. Where then will the next one come from? Where will the next plastic toy come from? What about the battery to power it? The packaging to attract our eye to it in the store? The paper to wrap it as a gift? The ink to print on the paper? What will we do for sellotape to make a parcel, when the plastics industries close down? Where will string come from?

All these things had their equivalents before the age of oil, but we have lost the ready access to skills and materials needed to bring them back. Where are the string makers? The paper makers? The toy makers? If these skills exist, they are not in the high energy societies like the United States, or England, or Australia. Those skills have been exported to China and India and Africa, in the name of Globalisation.

How much we have lost. How much we will wish we had seen the day approaching and had prepared for it. Our toys and technologies will be of little use, when cheap energy is a memory.

Only quantum photons were used to render this page.

Friday, December 17, 2010

Let's go flying in a lead balloon

So, what is going to happen? What does it matter if oil gets a bit scarce and a bit expensive? Life will carry on much as usual, won't it?

The short answer is "No".

Once oil gets past a certain price, some say about $150 per barrel, the economic consequences become nasty. At a sustained price above the tipping point, many industries become uneconomic and mass business failures result, which dumps large numbers of workers in the unemployment queues and the economy contracts. This becomes a self-feeding problem. As more incomes are lost, the amount of spending power in the economy shrinks, retailers suffer and the domino effect of business failures continues.

Of course, it is hard for unemployed people to pay mortgages, credit cards, loans: credit collapses, more businesses go to the wall and banks start to feel the heat. When things get really out of control, banks fail and, get this point crystal clear, governments will not be able to bail them out as they did in 2008/9. Governments world wide are already deeply in debt and a shrinking workforce means a shrinking tax base. It will be hard enough for sovereign debt to be serviced, without adding the burden of propping up the banks.

It goes without saying (so I will say it) that countries will start to default on debt, which will be the big dominoes starting to fall. When countries go under, there is no-one left to save them as Greece and Ireland were saved in 2010.

One of the interesting questions is "How long will it take before the USA defaults?". The American economy is addicted to oil and to credit. Either of those drying up would be catastrophic; both collapsing will be unsupportable.

There is another effect of a shrinking economy, or recession, which is not initially obvious to non-experts like me. In the economy, already awash with money backed by debt, depression is going to result in the same amount of cash chasing fewer goods and services. This will cause the number of dollars per unit purchased to increase - in other words, prices will escalate even as the economy contracts. To the Mr. Average, the cost of living will spiral upwards even as the number of dollars in his pocket shrinks. This chapter of the series 'Crash Course', by Dr. Chris Martenson, should give most of us pause for thought.

Chaos? Nightmare? Reality, according to my research. As always, I am not here to prove anything and the interested reader will be able to find the same information through diligent searching of the Internet.

So, let us assume for a moment that the worst has happened and world wide economies are in reverse gear. What will be happening to Mr. Average? What kind of life will he and his family be living?

First and most obviously, he will not be using his car very much, even if it has not been repossessed. The cost of petrol (gasoline) will be going up in the price spiral, possibly faster than many other commodities. With limited personal transport, especially in the suburbs remote from city centres, going to the supermarket to pick up the weekly groceries will be next to impossible. But that won't matter so much, because he won't be able to afford the groceries any more. Wait - there's more! Or less, in fact. Groceries will become scarce, because the transport systems will be failing and suppliers won't be supplying much of anything anyway.

So, what is Mr. Average going to eat? Big question and no simple answer. If he has been prudent, he will have turned his backyard into a vegetable garden long ago, but it takes an awful lot of vegies to feed Mum, Dad and 2.3 kids. Realistically, he will be unable to grow and scavenge enough food for very long. You know what that means: people are going to be hungry. Starving, in fact. Can you imagine what mobs of starving people will do? I expect some will riot, some will form gangs to plunder what few resources remain and many, the greater number perhaps, will just quietly fade away and die.

Yes, I am talking about large numbers of people, in the advanced economies of the world, starving to death. And not just starving, dying from disease as well. Once public amenities such as power, water, sewage disposal and communications start failing, the circumstances are ripe for the spread of diseases we thought were only found in backward countries. If you have imagined well so far, now imagine something like cholera exploding in your neigbourhood. Imagine not knowing if the water you are drinking, the food you are eating, even the air you are breathing is carrying some disease you have no immunity to and for which there is no help available. Or did I forget to mention that hospitals will be closed and medical supplies will not be getting through anyway? Getting the picture?

And this is happening all over the world. Just because there is not enough cheap crude oil to keep the wheels of industry turning and the insane expansion of debt serviced.

Sobering thoughts. And this is just scraping the surface of the collapse which might happen. Don't trust me - you go and do your own research. Show me that things will not go this way when cheap oil is a memory. Show me that life will go on much the same as it does now. I would love to be convinced.

No cute animals were injured during the making of this post.

Saturday, December 11, 2010

We live in interesting times

"May you live in interesting times" is reputed to be the first of three ancient Chinese curses (Source). Well, we are in the midst of times which are certainly interesting. One reason they are interesting is that they appear to be unpredictable. I am used to predicting my future based on my recent past, expecting that things will remain much the same as they are and life will basically be a case of 'business as usual'. This has always worked in the past and I have regarded attempts to woo me away from it to be the actions of long-haired right (or left) wing radical hippie pot-smoking trouble makers.

Now, I am not so sure.

This blog is a record of my attempts to untangle the present enough to work out what might happen next and, from this, to predict what might happen in my lifetime.

I am just Mr. Average Citizen. I am not an economist, environmentalist, or any other kind of high-profile '-ist'. What I am is a retired computer systems analyst, a product of our age of technology. My only asset is an ability to focus - my wife says obsessively - on problems that interest me. I do not expect to bring new information to the debate, but only to winnow kernels of fact from the harvest of information available on the Internet.

The current problem that interests me is this: What will happen as energy gets more expensive?

Like most Baby Boomers, I have been used to cheap fuel for my car, cheap electricity for my computer and unquestionable solidity in the banking industry. As an Australian, I have also been used to a world in which the USA is generally cast as the good guy in global conflicts, by the media in my country.

This decade, I have seen oil prices go from about $25 per barrel (Source) to about $90 per barrel (Source) and electricity charges rise by 13.29 per cent on July 1 2011 (Source) following annual rises in excess of inflation since at least 2007. In the same period, the global financial crisis has hit and the shiny image of the USA has become more than a little tarnished.

Could all this have been forseen? I certainly did not see it coming, but researching now I see there were plenty of clues and plenty of well informed commentators sounding alarms. What has been missing is media focus, to let Mr. Average Citizen know what to expect.

My research to date leads me to the conclusion that much of the geopolitical turmoil and financial instability we are living through comes from one root cause, which is that the world is running out of cheap oil. Cheap oil. We are not running out of oil as a commodity and probably never will, because there will always be some which is just not worth extracting.

The problem is that we are reaching the point where world demand cannot be met by available supply and the oil which is being produced is getting more expensive to extract. This is resulting in the price being bid up on global markets, as developed and developing economies compete for this shrinking resource which fuels almost all economic growth.

This blog will not attempt to argue the case for an impending oil shortage, as that has been done already by many other people. If the reader is interested in this background, I recommend googling 'Peak Oil' and 'Energy Decline'. As far as I am concerned, if a body as conservative and optimistic as the International Energy Agency (IEA) states that oil production probably peaked in 2006, that is good enough for me. For an insightful discussion of the IEA's 2010 World Energy Outlook (WEO) report, I recommend you turn to this article by Chris Martenson.

I am here having already arrived at the conclusion that an oil crunch is coming in the next handful of years and in this blog I am interested in exploring both the near term and long term impacts this will have on oil-powered economies in the developed world. Is it going to be a bump in the road, or will it be the end of civilisation as we know it? What will be the social and geopolitical impacts as we transition to a low-carbon future and what kind of society will eventually stabilise? How does climate change fit into the mix?

Watch this space for the next exciting episode. Please note that this web page has been produced using only recycled electrons.