Actuary Gail Tverberg returns to provide an update on where we are in the global energy story. Her outlook is not rosy: She does not see a path for society to transition to an affordable, plentiful substitute to petroleum as a transportation fuel. The physics as well as the funding do not pencil out, at least with today's known technologies.
Without such a solution in hand, the world finds itself now mired in a scenario where there really is no long-term workable range for the price of oil. It's either "too high" and demand suffers, or "too low" and producers can't afford to extract it. The acceptable middle ground has disappeared:
When on the rising side of the Hubbert curve, everybody has good wage level and everybody can feed themselves. You can build new oil wells and everything works out fine. But what happens as you get past the 50% mark is that you no longer have enough oil coming out for the economy to keep growing. It starts going down. And what happens then is that the economy doesn't function in the same way. You start getting the prices to spike as you try to get higher-cost oil out. And this is what we saw in the 2007-2008 period.
The price of oil spikes and you get recession. Then the price of oil comes back down. But wages don't recover and you get the very low price problem that we have right now. So it doesn't work right. You can't keep getting the same amount of oil out, essentially because the wages of the people don't stay up high enough in order to afford the output of the economy.
At this point, it has gotten bad enough that there is no price that works. The price that producers need is higher than what the market will bear.
If we go to a place like Saudi Arabia, you'd say: They can get it out of the ground for $20 a barrel. But then when you look at it, you discover that they really need a much higher price if you include in all of the taxes and all of the funding they need to keep social order, import lots of wheat and the many other things that their economy needs, and build a desalination plant. So they really can't get along on $20 a barrel. They learned how they can get along on $100 or $120 a barrel, but they can't get along on $50 a barrel - even in Saudi Arabia.
So you end up with a situation where there isn't any kind of price that really will work.
Click the play button below to listen to Chris' interview with Gail Tverberg (46m:06s).