Monday, March 19, 2012

do you believe in magic?

questioneverything | These days I try to tune out what is going on in the Republican primary race because, to be blunt, every candidate is a joke and everything I've heard any of them say to date has been ludicrous. Especially about energy and the economy. More than that, I am heartbroken that so many citizens in this country can actually buy into any of this dribble. To be fair, however, the Democrats and the current administration haven't got it much better. They seem to be a little more realistic when it comes to understanding the oil/gasoline price problems, but they still don't seem to get the underlying dynamic that is driving us all off the cliff. Right now they are working hard to put the best spin on the recent economic data that seems to show the economy in recovery, even if slowly. But spin is all it is. As long as oil hovers north of $100 per barrel, we are all going to be adapting downward for a long time to come.

For example there is a lot of hot air circulating in the left political arena and in the MSM about jobs starting to show improvement. And it appears to be true that the raw numbers of jobs, even across many sectors, is either increasing or the loss is slowing. What they don't tell you is that the average wage rates for these new jobs is much less than what the old jobs (in the same sector) had paid. People aren't complaining. They are just happy to have a job. What the newly hired, as well as most Americans in the low and middle classes, are doing is cutting back on non-essentials. The recent run up in gas prices on the coasts is aggravating this. GDP growth remains sluggish even while the stock markets seem to be soaring. The left wants everyone to believe that the economy is recovering as we plunge into the political season. But, in fact, it is only adjusting. People are lowering expectations and adapting to a lower overall cash flow.

Meanwhile the underlying true cause of this contraction dynamic goes without recognition. As the world shifts from traditional crude oil liquids to the kind of gunk we get out of Alberta's tar sands, the net energy per capita continues its downward spiral. Peak conventional oil is being compensated in volume by bringing on more non-conventional and energy expensive volumes just to keep up appearances. Usable energy, that is the kind that does useful economic work, is the basis for the economy. Purchasing power relies on having enough energy to produce real goods and useful services and the amount of useful energy derived from non-conventional (like deep water) oil cannot replace what we had from conventional. No feasible amount of biofuels will make up the difference either.

But what about natural gas? The word on the street is that we have enough NG for 100 years at present use rates. The President said so. The NG companies say so. The investment bankers say so. The MSM says so. All we have to do is convert everything to NG and away we go!

There is a little known fact about NG, especially the kind you can only get out of the ground by horizontal drilling and hydro-fracturing the shale rocks. First the difference between technical recovery and financially-feasible recovery is significant. The MSM (and everybody else) likes to quote the reserve estimates based on the former. They choose to use this much higher number because they believe the technology to make it economic is just around the corner. Ask any of these advocates about the latter and they will look at you cross eyed. To them technically recoverable is the number that counts. Also what they do not know is the production dynamics of the non-conventional wells. It is true that these wells, when they produce (which isn't even close to 100% of drills), they produce at a much greater initial level than conventional wells. A fair amount of the hype about NG comes from this observation. But they never follow with the fact that these same wells have a much faster decline rate. In fact it looks like the decline rates of such wells is so fast that the total volume of actual NG recovered is much less than the initial burst would have predicted based on conventional wells. In other words, there is a big fanfare of production followed by wimpy results. I would bet the NG companies will not be publishing that to their investors.

The net energy per capita of all forms of fossil fuels is in decline. Even coal is costing more to get to the power plants. And if emission requirements gain any teeth (not really likely) then the costs of producing electricity with coal will climb and it will NEVER go down again.

The economy can grow as long as net energy is growing. There are only two ways that will happen. If the total volume of raw energy (fossil fuels) is growing rapidly then the total net will also grow. Or, if someone were to figure out how to reverse the decline in energy return on energy invested (EROI) then that would boost the net return from any amount of raw energy extracted. As that might entail finding a loophole in the Second Law of Thermodynamics, and as no one who knows anything about the physics expects that to happen, that avenue is probably not going to work out. There is a third way we might experience growth of net energy on an individual level, and that is if the population would stop growing, and in fact, decline. Well peak oil (and the same phenomenon covering NG and coal) pretty much puts the cabash on the first way. The second would require an act of God. And the fourth is biologically impossible — we are still animals. So, since the net energy is destined to decline so is the economy. Simple physics.

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