André Sautou

Sign of the Times: Companies Experiencing Difficulties

I am not surprised to read such news.

I have suspected for many decades that fast economic growth could only be sustained with energy produced at low cost, sold at low price and able to satisfy a growing demand.

I have also suspected that such kind of energy could only be provided by easily accessible concentrated deposits (such as oil, gas and coal, or nuclear fuel such as uranium or thorium) and that renewables would remain to costly (being generally diffused and/or intermittent).

I suspect now that the Golden Age we have known after World War II may have ended last July. Maybe our present world has reached or is about to reach its maximal power, now producing and consuming around 11 Gtoe per year (1 Gtoe = 1 billion ton of oil equivalent) when adding oil, coal, gas, nuclear and renewables (including hydraulic).

[Only a few people know that this power was worth about 1 Gtoe/year in 1929 and 1.5 Gtoe/year in 1945 ; it then increased by around 1.5 Gtoe every ten years or so until 2005, as show some curves that can be found on a few WEB pages, typing the following keywords : Schilling & Al. (1977), IEA (2002), Observatoire de l'Energie (1997).
One of such pages is energycurves1860to2000.../ .]

And I suspect also that our present world may have lost its capability to invest money in order to sustain its growing population while at the same time being able to devote a sufficient part of its investments so as to increase its annual energy production. In other words, it may have reached the ultimate limits of its expansion, previously anticipated by the Club of Rome in 1972… Will it soon enter into decline, after having reached “Peak Energy” and “Peak Humanity” ?

Hush! Let us talk about something else. For the time being, such Club of Rome talk is “taboo”. Heads of state, politicians, economists and mainstream media do not want to hear such kind of talk, want to ignore the many warnings expressed by experts such as Colin Campbell and many others (for instance: ASPO January 2009 Newsletter, www.aspo-ireland.org/c... ) and still want to believe that there is a future for long term economic growth.

Capitalism and the Markets Fuel Economic Growth

Capitalism and the markets are the fundamentals of a system having allowed economic growth to work as long as it was possible to draw from some set of energy sources annual amounts of energy increasing year after year.

[ Such assertion can be illustrated by the “Schilling & Al. (1977), IEA (2002), Observatoire de l'Energie (1997)” curves, displayed on a few WEB pages, for instance this one :

energycurves1860to2000.../ ]

The fuel comes from the energy sources, not from the system itself as implies the title of this article.

At some point in the future, the possibility to increase year after tear the annual energy production will disappear and economic growth will no longer work.

[We have perhaps reached such a point in the fourth quarter of 2008]

People who do not want to acknowledge such a fact are implicitly saying “It will always be possible to increase year after year the annual energy production, so that economic growth will go on for ever”.

The present crisis (implying mainly energy-production, money-lending, investment and population-carrying capabilities) cannot be compared to the 1929 one, as many people do.

The crisis of 1929 was the main crisis of the 20th century. It just belongs to human history, being just one of its innumerable events.

The present crisis is probably the beginning of the end of the ten-millennium-long expansion of the human species all over the Holocene. It of course belongs to human history, but it also belongs the geological history of the Earth.

Will Economic Slowdown Hurt Greentech Investments?

I am sorry about that and I understand the disarray of clean energy developers. But I am not surprised by such news, as I had anticipated such outcome. I believe that fast growth can only feed itself with energy produced at low cost, sold at low price while keeping able to satisfy a growing demand. This is what happened all along the period 1945-2003, the most extraordinary period of all human history.
But I am afraid this period has now come to an end, as I have tried to explain in the Letter to the Editor entitled a href="euractiv.blogactiv.eu/.../" target=" blank">Energy, growth and money-lending capability posted by EurActiv.
With the cost of producing energy getting ever higher, the money-lending and investment capabilities will become ever lower, until finally our world has reached its growth’s ultimate limits. This is just physics, and no politician, no economist, no financier can change the laws of physics.

The Sun Is Not Also Rising Over Solar Stocks

I will not be surprised when I hear that the pharaonic construction in Dubai has been built on a tremendous financial bubble and then crumbles down like a splendid card-castle ...

Forget $100 a Barrel - Oil Will Plummet to $30

I advise Jason Schwarz to prepare himself to face delusion, in the months ahead, when oil prices resume climbing again.

And You Think Today's Gas Prices Are High?

There is a major difference between 1929 and now : at that time many sectors of economy could be operated without cheap energy. Consider, for instance, agriculture : it mainly worked with human and animal labor. The average distance traveled by food, from producers to consumers, was small. Other features : in most houses, electricity was just used for light ; urban cities were not so big and heavily dependant on transportation ; our world had not yet become addicted to fast growth, as it is now (thanks to cheap energy) ; etc …etc …
Now, we are heavily dependant on cheap energy, and all features linked to such dependence will crumble down as energy prices get higher and higher.

The 'Peak Oil' Myth: New Oil Is Plentiful

For a better understanding of what EROEI means I advise Jason Schwarz to have a look at the following pages :

scitizen.com/screens/b...

and

ergobalance.blogspot.c...

André Sautou

Is 'Peak Oil' Already Affecting the Stock Market?

Like Hirsh, a lot of ordinary citizens think that there will come a time when oil scarcity will hobble the economy so severely that the stock market will crash and that it will no longer be profitable to own any stocks, even energy stocks. There is no need to be an expert to understand that. You just have to remark that 1°/ economic growth is fed by the growth of energy production, 2°/ sooner or later energy production will reach a summit and then decline and 3°/ a stock market needing expansion to remain viable will obviously crash (or maybe have crashed already) when expansion reverses into contraction.

Can Saudi Arabia Push Down the Price of Oil?

Until around 2005, Saudi Arabia acted as a “swing producer”, adjusting its production to demand in such a way that crude prices were kept moderate. But why did they then stop playing that role ? Because they could not play it any longer on account of their oilfield’s decline, or because of deliberate policy intended to prop up prices in order to increase their profits while extending the lifespan of their resource ?
Maybe for both reasons simultaneously. The kingdom’s ruling elites may have judged, on one hand, that they could no longer act as a “swing producer” in the context of a demand growing too fast ; and, on the other hand, that getting bigger profits from high selling prices would allow them to solve serious domestic problems …
Now, with demand greatly bridled by those high selling prices, they may estimate that they can – and must – resume their previous role in order to stabilize the prices (or at list moderate further increases) and in doing so avoid a premature collapse of the world economic system they depend on and in which they detain profitable capital.

"My grandfather rode a camel. My father rode in a car. I fly a jet airplane. My grandson will ride a camel", use to say the Saudis. With God’s help, reverting to riding a camel may be delayed by one or two generations … on condition to make decisions able to lead God’s will in the right direction.

André Sautou

The 'Peak Oil' Myth: New Oil Is Plentiful

To anaconda

1°/ I do not imply that the average EROEI (concerning all energy produced in the world) will evolve very quickly towards a 1:1 ratio. I believe this average EROEI will get lower and lower, but I imply nothing about the pace.

2°/ Making low EROEI fuel may be possible at a very low scale when perverse effects (like government subsidies) allow a few producers to make profits. But that is not sustainable at a large scale.
André Sautou


On Jun 25 06:46 PM anaconda wrote:

> To andre Sautou:
> I gree with your analysis except for one HUGE assumption you make:
> That the energy required to produce the energy will go to a 1:1 ratio
> as quickly as you imply.
>
> Corn ethanol is less than a 1:1 ratio, I think its about 1 33:1.
>
> That's why corn ethanol is ludicrous to make.
> (can only be made with government subsidies)
>
> In the big scheme of things, ultra-deepwater, deep-drilling is still
> substantially over the 1:1 ratio -- I don't know the exact ratio,
> but oil companies wouldn't invest in it if it was less than 1:1 ratio.
>
>
> Almost all hydrocarbons are over a 1:1 ratio. But admittedly some
> get pretty close to 1:1 ratio to the point they are marginal for
> economic production.
>
> Liquid hydrocarbons -- oil and gas condensates don't fall into that
> category.
>
> So your "Peak" gloom and doom, while is right on the analysis of
> the energy cost to produce energy, is wrong on how soon it will get
> there, if it gets there at all within a meaningful economic horizon.
> Over 30 years away and it has no impact on the economics of today.
>
>
> That's what this blog commentary is about -- the economics of oil
> today. Not 30,50, or 60 years from today.
>
> Go back asleep and wakeup 30 years from now and cry your "doom and
> gloom", otherwise you're wasting my time and more important for you
> -- your time.
>
> So is pointless to "doom and gloom" about it now.

Upside to Oil Stocks?

This news is very interesting and clearly presented for ordinary citizens.

I share Eric Parnel’s analysis. But I also think that oil prices have now begun to pass the threshold beyond which further increases could substantially slow down world economic growth, up to a point that demand for oil might fall sharply while the world recurs more and more massively to coal, nuclear, renewables, further improvements in energy efficiency and restraint from using energy for non necessary purposes. And therefore prices could stop rising, stabilize for a while, and maybe slightly decrease.

Many investors may feel the same, and that perception may explain their hesitation about betting about further important increases …

The 'Peak Oil' Myth: New Oil Is Plentiful

Short lesson about EROEI

Contrary to what says Jason Schwarz, Peak Oilers know very well that oil still remains plentiful. But they also know what EROEI means and that any author ignoring it can only write rubbish when they express their opinion about Peak Oil. And it is obvious that Jason Schwarz ignores what EROEI means.

EROEI (Energy Returned on Energy Invested) is the ratio of the amount of usable energy acquired from a particular energy resource to the amount of energy expended to obtain that energy resource. For better understanding, let us consider two examples.

First case : EROEI = 16 (high value) ; we expend 1 energy unit, we get 16 units. The net usable energy is therefore 15 units when 16 are produced.

Second case : EROEI = 2 (low value) ; we expend 15 energy units, we get 30 units. The net usable energy is therefore 15 units when 30 are produced.

In the second case, the cost of producing a same amount of usable energy (measured in energy units) is 1.9 times higher than in the first case. And the depletion rate is also 1.9 higher.

More generally, as EROEI declines and gets ever closer to 1, energy production must accelerate just to maintain at the same level the net energy amount available to society. Practically, it means that 1°/ the cost of producing net energy increases, 2°/ the exhaustion of non renewable resources accelerates and 3°/ it becomes more and more difficult to increase year after year the annual net energy amount needed to feed economic growth.

(For more details and calculations about EROEI, I advise Jason Schwarz to look at the article titled “ Understanding EROEI ”, posted on Scitizen (7 March 2008) by Robert Rapier

scitizen.com/stories/F.../ )

From 1945 to around 2005, thanks to conventional oil (high value EROEI) our world has been able to 1°/ produce energy at low cost, 2°/ sell it at low price and 3°/ satisfy a growing demand. This is how fast economic growth was generated. But in the decades ahead the average EROEI of the still plentiful remaining energy resources will get lower and lower, getting ever closer to 1. Therefore the pace of economic growth will get slower and slower, reducing the investment capabilities of our economies, and it will become more and more difficult to increase year after year the annual net energy amount needed to feed economic growth. At some point, beyond a certain threshold, those capabilities will vanish and we will then reach Peak Energy, the summit of world annual net energy production.

Thus Peak Oil will happen, sooner or later. Those who denie such a fact believe that in a finite world the annual energy production can go on increasing indefinitely. Nonsense.

André Sautou