sorting

In an amazing piece of timing, after I posted my last note, I read the latest piece online from John Michael Greer in his blog The Archdruid Report. There, he said:

When a substantial majority of Americans straight across the political landscape convinced themselves in the early 1980s that mouthing feel-good slogans and clinging to extravagant lifestyles over the short term made more sense than facing up to the hard choices that might have given our grandchildren a livable future, that choice kickstarted a flight into fantasy that continues to this day.

I’m certainly not the only one who has noticed this stuff.

Greer’s essays on his running blog have been doing a great job of looking around at current circumstances, and digging into human history, and generally examining all kinds of different ways people are generally not really getting things in clear perspective.

As always, and again, this gets a bit repetitive, talking seriously about the circumstances of the time here means, inherently and unavoidably, getting into a lot of things where what there is to say, and what we all need to see clearly and really understand, is stuff that people are more likely than not going to regard as bad news. Why are you so negative? That’s so pessimistic! Dude, why are you, like, such a bummer?

On top of all this is the simple fact that simple fact is working against another severe handicap, besides the just mentioned “I don’t like that, so it can’t be true” denial malfunctions, that being the massive saturation levels of sheer bullshit pumped into the world. The twist there, of course, is the flip side to what I just described, which comes down to people thinking “ah, I like that better, somebody is saying everything is going work out just the way I like, without costing me anything, or making me do anything different, or causing any inconvenience”.

Sorting this out is tricky enough when you aren’t suffering from the kinds of mental warps I’m talking about and are willing to look at something as it actually is, and deal with things accordingly.

 

As I write, the end of another week of the buzzing mad circus of “the markets” comes to a close here in the US with the standard benchmark crude oil prices ending up about $106 for West Texas Intermediate and $109 for Brent. One thing I find interesting, and can’t explain at this point, is that the WTI and Brent prices seem to normally be much further apart (sometimes close to $20 difference), and now they’re so close. But putting aside the mystical mysterious mystery of “the markets”, more to the point, there it is, crude oil prices up over $100 per barrel, as we inhabit a system of doing business and things where damned near everything was based on notions of normal being crude oil selling for maybe $20 per barrel or so. This causes, shall we say, issues.

At this point of course, many many people suffering under popular delusions, about what is and is not going to happen in the department of petroleum and hydrocarbons in general, will say “we need to do stuff to remove the obstacles to more oil production…” (because they think it’s just some poor politics and “government regulation” as the only problem) “… and get oil cheap again!”.

This unfortunate foolishness disregards the simple fact that much of what some people like to think of as our oil solutions, like processing the gunky bitumen from Alberta’s tar sands, or scattered tight oil pockets in North Dakota in the Bakken formation, are only a workable proposition when crude oil prices are up in the high range that is now normal. If anything does knock the selling price of crude down to a level that makes “the economy” in general happy, the mythical panacea of “cheap oil”, all that stuff is probably going to shut right down, because it can only be done at a loss, unless people in that business decide to keep going while operating at a loss. So that wonderous “new production” would go poof.

The only alternative I can see happening in that scenario, of crude oil prices down, well below the costs involved in all the supposed magic of “unconventional oil”, is some sort of Ponzi scheme game where it is only kept going by the entities going after the stuff maintaining funding of the entreprise by means of sucking in more and more capital “investment” from people enticed into the game by nonstop happy propaganda about “energy boom!”.

This, boys and girls, is the picture of what the term “peak oil” means; increasing costs with diminishing returns.

Looking out at the international news of geopolitical dramas, anybody paying attention to the news will know about the renewed turmoil and angst and drama happening in Eygpt. You will find no shortage of yammering and opinion about all that in the news media, filling lots of time and space with random yapping instead of actual news.

What’s missing from all of that babbling is what you can find by reading the article Egypt condemned to continued chaos without its earnings from oil!, which lays out a basic piece of reality for Egypt. The combination of diminishing returns peak in oil extraction rates and increasing oil consummption within their own country has just fairly recently put the nation of Egypt into brand new territory. They have changed from being an oil exporting nation to becoming an oil importing nation. The question then becomes, what does Egypt do in the realm of international trade to pay for over-$100/barrel oil, when a chunk of the nation’s economy has been selling oil to the rest of the world?

That is huge, for Egypt. It’s pretty significant for the rest of the world, although people will argue that the amount of oil involved small, on the scale of the worldwide picture, which pretty badly misses the larger issue here. That is, this is the way things will go, and it’s a one way path. Nations that are oil exporting nations all reach their maximum peak extraction rate, the peak of Hubbert’s curve, and go into decline, sooner or later (and most already have, as the US over 40 years ago). Coupled with increasing use of their own oil within their own borders, all “oil exporters” are on the way to being oil importing nations.

The obvious problem here: eventually there are no oil exporter nations left. So, what does that mean for oil importing nations stuck on using the stuff way faster than they can gather it up, if they have oil, plus the countries who operate on devouring loads of oil while having little or none themselves (e.g., Japan).

You have to look to even notice this, and I don’t think it’s too presumptuous to say that an awfully small minority of people, at least here in America, are even bothering to try to get a good look and get their minds around the situation. Even people who like to think they’re well informed, and not prone to falling victim to propaganda, are falling victim to propaganda about what we’re supposed to believe is “energy independence” on the way.

Oil extraction rates in the US have risen to about 7.5 million barrels per day, with people proclaiming this as wondrous news about our “energy boom” and path to “energy independence”, which impresses people who don’t understand Hubbert’s curve, and don’t know that the peak of US extraction rates around 1970-1971 reached around 9.5 million barrels per day. Laid against the US rate of consumption being around 18 million barrels per day, it’s not so exciting. Maybe we could consider that exciting, but not in a pleasant way.

As the US rate of oil extraction peaked, over four decades ago, the country in general just seemed to shrug and rolled right on with increasing gluttony of the stuff, turning to importing more oil. It’s important to note that the United States didn’t just start importing oil then, as you can see if you take a look at a historical graph of US oil production, consumption, and net imports. The United States has been using more oil than was extracted from the ground here, and filling the shortage with imported crude, since around 1950. Reflect on that for a while.

Now, at this point, I can imagine that a few people might think “well, we’ve been importing oil all this time, so maybe Egypt won’t have so much trouble”, somewhat missing a point or two.

First, it’s worth thinking a while about just what the repercussions have been, here in the United States, of this decades long state on being an oil importing nation.

Next, what should be the obvious big question on everybody’s mind; what happens when oil exporting nations hit combinations of increased domestic consumption of oil in their own country and hitting their own peak of oil extraction rates, and there are no more “oil exporting nations”?

 

Spend some time reading another article, on the Economic Undertow blog. There are a few things to take in there, including some important insight into the Egyptian situation, and some thoughts on the odd national state of mind we have here in the US of being a consumer society almost as a kind of dogmatic and zealous religion. Scroll down toward the end of it, and you find a very important item to think about very seriously, about the oil predicament we’re in.

The basic point there is, what happens as costs of oil extraction, in the assumed miracle wonders of “unconventional oil” extraction, keep rising, in the one way road we’re on in increasing difficulty and complexity, and if crude oil prices come down to meet that level?

This is where it gets more complicated, when there is more involved than just the physical aspects of the substances and geology, and starts into the domain of the human activities, the engineering, the processes, and all of the economic factors. It’s not too difficult in basic form. As costs rise, as we get further into diminishing returns, to what’s left, the lower quality oil (or pseudo-oil regarded as oil), harder to get at, in smaller concentrations, well, let’s state the obvious, this changes things.

I realize as I write that sentence that it might need to be said, definitively, costs of what people call oil “production” will keep rising. With that, I should clearly point out that it is not some accident or quirk of personal word choices that I am usually using the word “extraction” where it’s almost ubiquitous and universal to say “production”. I choose words carefully here, because the word “production” seems to plant an implied idea in people’s heads that we can make more of the stuff. That gets people veering off into dangerously delusional thinking, that “innovation” and “market forces” can cause us to just make more of the stuff, just because we really want there to be an endless and cheap supply.

But, to get back to the main path here; the key point is that as costs rise, if the selling price of crude meets the cost levels, or the costs exceed what can be recovered by selling the stuff, at some point, it’s a break-even or even money losing proposition. At that point, all this supposed miracle savior “unconventional oil” will scrape to a halt. Either that, or it becomes some form of subsidized operation, and however that might possibly come to be, subsidized anything still means that the costs have to be paid, somehow, by somebody.

If, in a different scenario, costs rise but the crude oil prices rise to stay above it and provide a possible profit margin for the operations doing this stuff, that means all the collected human activity we call “the economy” diverting more and more money to pay for petroleum supplies. What, then, does that do to everything else? That pushes things along to facing another issue; what does that money sucking effect have on the process of “capital”, which gets into the matter of funding all that increasingly expensive “oil production”.

I’m not presumptious and foolish enough to try forecasting the future of crude oil prices, but however it goes, as we roll onward through time, all the above will come into play. Along with all that needing to be kept in mind to put things in perspective, we all need to keep in mind a distinction that is not trivia, and this isn’t some game of semantic subtlety; “capital” and “debt” are not synonyms. They are not exactly the same thing.

 

All of this is subject material I find tricky, personally. Anyone who knows me very well would have a good laugh at any suggestion of business/economic/financial expertise in me. That would crack them right up. Among other things, this makes it a little weird to discuss anything in that realm, without facing the obvious “oh, yeah, what do you know?”. The thing is, we’re now deep into an era where the reality of things is pushing us to the necessity of some severe scrutiny of the “experts” of business/economic/financial expertise and asking “what do those guys really know?”. Perhaps more to the point, how much of it is not so much what they know, as much as it’s a question of how much is bullshit they’re just trying to sell the rest of us, and they know it’s bullshit.

To try to be fair, though, I suspect that in many cases, the bullshit might actually be earnest and sincere. They might really believe it, prompting a moment of reflection on the old adage, “when the only tool you have is a hammer, every problem begins to look like a nail”. We might be into territory there where a large portion of the issues involved might be described as a problem of over-specialization. Things get hyper-weird when all this gets into bizarre circuses of “Conservative economists” versus “Liberal economists” having endless raging arguments revolving around differing notions of belief that it’s all about politics and policy.

I have some trouble with the whole concept of the formal study of economics being considered a science. Sure, there is a load of formal study involving examination of real history and advanced mathematics, but there is an awful lot, it seems, in the realm of formal academic economics, that has serious problematic flaws in terms of what’s left out, ignored, or treated as assumed, a given, permanent states of conditions. It seems to me that nearly all of what people regard as serious economic theory, simply the way things work, has been a product of a period of human history that encompasses the last couple of centuries or so, with the assumption of many things of this period being a permanent state of affairs.

-There was always some “new frontier” to “discover” and exploit. (Never mind the people who might have been already living there.)

-There were always some new treasure troves of undiscovered and unexploited natural material resources, never ending.

-“Economic growth” was a function and result of these things plus enterprise and innovation and never ending, perpetual exponential growth.

It becomes clear after a while spent looking back over the last few decades that the overriding story of many things has been about getting into limitations on possible “growth”, with a stream of problems and repercussions arising and getting worse from people being fiercely determined to ignore and suspend reality to maintain illusions of ongoing perpetual growth.

It’s taken me awhile to understand this, but I finally realized how much of recent history has been “economic growth” that often really wasn’t at all. We now have this pattern. “New wealth” is imagined into being by the fabrication of new debt (as distinct from delving into stored capital to fund new activities and enterprises). That’s considered alright, because, hey, this debt will be paid back by newer future “growth”, which will actually be coming from creation of more new debt, which will be considered to be no problem, because that will be paid back from newer future “growth”… and so on, and on, and on. Eventually so much is borrowed from so far in the future, that when we get to the reality we have facing us nnow in so many ways, actual limits to “growth”, well, then, we do have a big problem. Especially when the players involved in these games really don’t want to admit, or have people understand, that the game is up.

Instead, we have what has been happening; people imagine into being new debt, people play their games in banking and finance and “the markets” to snatch up as much money and “assets” from this into their own hands, and leave other people left holding the debt, the obligation of payback weighing them down, even though it was imagined into being in the first place. It gets even more strange, just bizarre, in the realm of all the “new financial products” and “financial innovations” of derivatives and securitized mortgage bundles. It gets worse when it turns out that much of the gamesmanship involved is outright fraud, although it’s reasonable to argue that the whole pile is fraud, inherently and fundamentally, so that honest business isn’t even really possible in that realm.

Now, here we are.

 

“Ideology, in creating a bridge of excuses between the system and the individual, spans the abyss between the aims of the system and the aims of life. It pretends that the requirements of the system derive from the requirements of life. It is a world of appearances trying to pass for reality.”

‘The Power of the Powerless’ by Vaclav Havel

 

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