Falling oil price hurts …everyone

Only drivers are happy with today’s falling oil price. It makes it easier to afford what they do with liquid fuel – waste it.

You don’t see anyone else smiling.

  1. Big oil producing nations? Nope. They need a big margin on crude to pay for the social programmes. Otherwise, their enlarged populations will have to live on sand and dust.

  2. Private oil companies? Nope. Getting oil out of tar sand and shale ain’t cheap. Neither is having to fight icebergs or angry locals to keep the pipelines flowing.

  3. Electric vehicle makers? Nope. Cheaper petrol just thwarts their attempts to build a market at the same time as it hastens the demise of Happy Motoring.

As Charles Hugh Smith writes today, the the illusion that lower oil prices are positive is a head fake. Every year brings millions of new oil consumers to planet Earth but crude supply has been all but flat for nearly 10 years. In those circumstances there’s only one reason why prices are heading south through the $90s even though bombs are falling on the Middle East again.

It means the new consumers can’t afford 100-buck oil and neither, increasingly, can the old ones. It’s too expensive so people cut back. Less fuel burned means less ‘real’ economic activity (you know, making actual stuff rather than playing with financial instruments or writing smartphone reviews in coffee shops). Slow growth and shrinking tax revenues clobber jobs. Before you know it you’re heading for $80 a barrel.

What do you think that kind of oil price will do to the frackers and tar sand-boilers? Here’s a clue. We learned today that Sumitomo of Japan managed to throw away almost a year’s earnings on a disastrous foray into Texas shale. And that was when the oil price was over the 100 mark.

Sumitomo may have misunderstood the banks’ role in the fracking business. Seems they actually spent money drilling wells. Everyone else – well everyone in Wall Street – seems to have known that the real game was flipping leases and skimming the cream from the trade in hyping a long-lived shale boom.

If you can’t invest capital productively in drilling in the US, with all the president’s men behind you, what hope have you got in the Arctic or Nigeria or Iraq? Meanwhile, the UK’s North Sea seems to have arrived at a point, locally at least, which sounds ominously like the Peak Oil end-game where it takes more energy to get the oil out than you get from the oil.

As Hugh Smith sees it:

The essence of the Oil Head-Fake Dynamic is the inevitable drop in oil price resulting from a sharp decline in demand (i.e. global recession) will trigger disruption of the global oil supply chain that will eventually push prices higher than most currently think possible.

(…) demand rises but supply does not, and prices continue higher without respite or any intrinsic limit. As I have noted before, a motorcycle deliveryman in India or China will pay $10/gallon for fuel because he only needs a few liters to conduct his business. The energy/price threshold of the American household with two gas-guzzling vehicles is considerably less resilient and adaptive: below a high level of consumption, the household ceases to function, and above a relatively low price, the household also ceases to function.

That fits in with Gregor Macdonald’s Road Map to the Next Repricing of Oil on http://www.terrajoule.us. In Macdonald’s view:

(…) the next upward price move, starting about two years from now [September 2013], will share some similarities with the last repricing on the supply side. However, the conditions on the demand side will be very different. Oil will actually be in a subordinate role this time around to growth in the power grid. As energy transition continues, global GDP will be driven, in the years 2015-2020, by coal, natural gas, renewables and the total set of inputs to global power supply. Oil therefore, instead of being a driver for global growth, will be a beneficiary of global growth. Combine this with the inelasticity of oil demand in the Non-OECD, and oil will reprice rather easily during the next global economic expansion.

That promises to be OK for tuk-tuk drivers and motorcycle delivery persons. Not too bad either for the few in Europe and the US who will be able to afford EVs or the next wave of hyper efficient 140mpg cars. Bad for the disposable incomes of Westerners chained to conventional cars, school runs and commutes. And thus bad for the prospects of Happy Motoring economies during the next economic expansion.

Even then, as Ugo Bardi wrote this week, we are running low on the raw stuff we use energy to turn into manufactured stuff.

The essence of the eschatological event we are living in is that the time of mining is almost over, at least in the form we have known it for centuries. That is, from miners with their picks and helmets in deep underground tunnels.

But if eschatology means the end of something, it may also mean the beginning of something else. If mining is heading to an end, we can still have minerals if we are willing to change the wasteful and inefficient ways we’ve been using to get them. We must close the exploitation cycle, and completely recycle what we use. It is possible, but it needs energy – much more than we needed to mine pristine ores. This energy cannot come from fossil carbon: that would simply accelerate depletion and worsen the climate problem. We need clean and inexhaustible energy: mainly sun and wind.

It is unlikely that this energy will ever be so cheap and abundant as the energy that was provided by fossil fuels at the beginning of their exploitation cycle; so, we’ll need to use it wisely. We’ll need to be much more efficient than we are today: we’ll need to create more durable industrial products, use energy carefully and substitute rare minerals with ones more common in the Earth’s crust.

Whichever way one looks at it, the future is one of far leaner industrialism, if not full-blown deindustrialisation (© JMG).

London’s (gonna be) burning

No, no, no listeners! I’m not calling for mayhem or trying to organise socially-networked insurrection.

I’m just paraphrasing today’s front page article in the Guardian.

Looming London transport crisis ‘risks sparking riots’, says TfL chief | The Guardian

London could see riots again unless more trains and buses are provided at affordable fares for the poorest communities as the population soars, the city’s transport commissioner has warned.

He said the city will face “overwhelming” overcrowding on its congested transport networks by 2030 without urgent progress on new rail lines.

“London’s poor don’t live in Harrow Road, they live in Enfield and Tolworth and if you can’t get them to jobs they want, your city’s going to be in a bad way: it’s not going to progress and contribute to national economic growth,” [head of Transport for London, Peter] Hendy said. “The stakes are pretty high. If you’re not able to increase transport capacity, and people find accessing work impossible, you risk social unrest. You can expect trouble.”

Read the whole thing. You rarely get to enjoy quite so rich a mix of unconscious irony and unusual candour, even in the dear old Grauniad.

Maybe its something to do with the fallout from the referendum but all of a sudden we’re dropping the euphemisms and talking about people in honest four-letter words. Not ‘socially and financially disadvantaged householders’ or whatever. Poor people. And that’s good because once you start calling the poor the poor you can also start calling the rich the rich. Then you can begin to have a proper debate about trying to spread the wealth around a little more evenly, rather than indulging in hand-waving about transit investment corridors and strategic regeneration plans.

Unfortunately that’s where this promising story goes off the rails. I mean, instead of threatening fire and brimstone unless the rest of the UK’s taxpayers stump up billions to buy the capital a load of new rail and tram networks, wouldn’t it be cheaper and quicker to move the jobs to where London’s poor people already are?

Yeah, but that wouldn’t work, would it? They’re not the kind of jobs you can relocate. They’re cooks, bar staff, cleaners, ticket collectors, doormen, domestics. The people who lived in or around and between the well-to-do classes in imperial Rome or Victorian London. Ugh …such a primitive arrangement. The modern way is so much better: we simply allow poor people to ‘find their own level’ geographically-speaking, by moving to where they can afford to buy or rent a place. Like Tolworth.

Of course the big downside to this approach is that it makes it harder and harder to get everyone into the centre to do their jobs and then get them all out again. Go down that tunnel and you’re going to get – and Mr Hendy does not flinch from using the word – ‘overcrowding.’ Lest we miss the point, he mentions Mumbai and Rio de Janeiro as the kind of hell-holes plagued by fare price riots that London is en route to becoming (unless the rest of the country subsidises ticket prices, infrastructure, etc, etc).

This story has ‘exercise in trying to sustain the unsustainable’ written all over it. As the global economy goes through the transition from fossil energy to renewables, we’re entering a long stretch where we won’t have the capital or the juice to keep on pushing people further and further from their jobs in the expectation that we’ll simply build costly and complex transportation systems to ship them back in again every morning.

Perhaps that is what Mr Hendy is really trying to get people to understand. After all ‘poor’ is a great dog whistle word for getting the attention of folk for whom these issues are usually, shall we say, ‘remote’. He does say:

“But if the poor are not living in Tower Hamlets, Stockwell, Hackney and Southwark any more and all the places where people on low incomes used to live, they are living a long way away and a future mayor is going to have to make sure they can afford to get to work.”

So, hey son-of-Boris. Like maybe stop allowing the developers to push them out, man? Could we, like, try that?

But if Mr Hendy is serious, it goes to show how hard-wired our leaders’ imaginations still are to the cheap energy paradigm. As the saying goes, to a hammer every problem looks like a nail. If London’s problem is that its poor people are increasingly in the wrong places, perhaps it’s a pretty dumb idea, in a world where transport is only going to get more and more expensive by historical standards, to ask a transport planner to provide the answer.