When we first started talking about peak oil (I heard about in 2004) we were worried about the price of oil going over $100 a barrel.
One of my sisters said “They will find something” and heard a radio item about shale gas so she was happy. Another sister dismissed it as a plot by the left. She and her husband laughed about my concern.
Then we had the Global Financial Crisis in 2008 and all got busy worrying about housing bubbles, derivatives, debt bubbles, too big to fail banks and bailouts. This is all important stuff. The price of oil declined as the global economy declined and now keeps repeating these waves. Affordability oil became the issue.
In 2012 that same brother in law commented that my worry about oil was unfounded as the oil price hadn’t gone up as much as forecast and “they were always finding something”.
Now I realise what is happening and there is no better little book to explain it than the one former Green Party leader Jeanette Fitzsimons recommended in a recent talk run by the local Quakers. The book that blew her mind was The Perfect Storm – Energy, Finance and the End of Growth by Tim Morgan, Global Head of Research at finance broker Tullett Prebon. It is freely downloadable at http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf. I have printed it off and had it bound.
Morgan says: There are four factors bringing down the curtain on growth. The economy as we know it is facing a lethal confluence of four critical factors – the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy returns cliff-edge.
When oil bubbled from the ground in Saudi Arabia a century ago, only one barrel of oil was required to extract 100 barrels of oil. The energy return on energy invested (EROEI) was 100:1. But for tar sands it is 20:1, North Sea oil today 5:1, shale oil 5:1 or less and biofuels 3:1. He says below an EROEI of 15 the profitability falls off a cliff. For decades EROEIs are declining. Few discoveries today offer much more than 10:1. So as time passes economies are spending a larger percentage on energy. At the household level when petrol and power costs rise we have less and less for other essentials. A nasty little graph of oil’s dying EROEI is shown at http://deepresource.wordpress.com/2012/11/22/eroei-estimates-for-shale-oil/
The economy is a surplus energy equation not a monetary one. Too much energy has to be reinvested into energy extraction and too little energy is left for the essentials of food, government services, housing and investment.
The interesting thing is that Tim Morgan works for Tullett Prebon. It is the messenger which is unusual saying all these things. It isn’t Richard Heinberg or some sandal wearing, folk dancing greenie. In a way Tullett Prebon seems to be taking over where Matt Simmonds left off.
I think the most scary thing in his whole book is the graph of the energy returns cliff. While we blithely go into debt to build motorways and while we waive civil rights to protest at sea about deep sea oil drilling, it must be worthwhile paying attention to what this energy firm is saying.