Why no recovery? Because, Chris Nelder believes, energy will be the real currency of the future, and it is about to become an even bigger issue. One that will tip whole economies into prolonged and sustained decline.
He asserts that peak oil may have been reached but that it does not matter that western oil demand has been reduced by the economic slowdown here causing oil prices to fall back. Why? Because developing countries are prepared to pay increases in price for a barrel of oil because in these countries a barrel of oil goes a lot further in contributing to economic growth. If you want a simplified visual metaphor, think peasants on scooters in China and India.
It’s a different story in the west however. For debt-laden consumers, an extra £50 to fill up the tank in a conventional car every month means sharply reduced discretionary income that is starving economies of their most fundamental driver, consumer demand.
As we enter the post-peak phase of global oil supply (sometime around 2012-2014), the price that heavily import-dependent countries would have to pay for that marginal barrel will become increasingly intolerable. In a weakened economy, $100 a barrel (or less) could be the new $120.
The true consequence of peak oil, therefore, may not be sustained high prices, but economic shrinkage. Demand may be destroyed long before oil gets to $200 a barrel, and improved efficiencies may not make up the shortfall.
If energy is the only real currency, then trying to print our way out of energy decline is futile. Unless perhaps, rather than spending the money on traditional infrastructure projects such as roads, the cash is used to fast forward energy independence via the creation of the electron economy.
The vogue prescription for the sovereign debtors at greatest risk of default is “austerity measures.” The theory is that a period of belt-tightening will staunch the fiscal bleeding until economic recovery puts everyone into the black again. This made sense to me until I read Chris's piece. Yet, if primary energy supply is declining, and the rising star of developing economies is inexorably cutting into the supply available to developed and indebted economies, then there can be no recovery adopting this policy.
The first question is: Where will the energy come from, as more of the world’s net exporters become net importers? Britain, Argentina, Indonesia, and others have become net importers in recent years. Mexico and Columbia are expected to follow suit within a decade. Clearly, we can’t all be net energy importers.
There is also the obstinate fact that aggregate net energy - the energy you get in return for investing energy in its production – has been dropping steadily. Oil net energy dropped from 100 in the early 1930s to 11 or less today. Net energy for natural gas is now in decline. We don’t have adequate data to know yet, but coal’s net energy is probably in decline too. Meanwhile, the net energy of all substitutes is low: wind, 18; solar, 6.8; nuclear, 5-15; all biofuels, under 2. It is not looking good, but here in the UK as the debate rages about whether to print money to invest in road infrastructure projects to stimulate the economy, perhaps the solution is to invest it in accelerating energy independence and affordable electric vehicles, so that we can afford to drive on the current roads, rather than building new roads on which fewer and fewer people can afford to journey?
The second question is: If the creeping infection of sovereign default continues to spread to more countries, where will the money come from to bail them out? Without cheap energy, monetary tactics to play the game into overtime will not only be futile, they will only draw us closer to the edge of the net energy cliff.
All of which begs a final question: If the answers are transition to renewables, and rebuilding our infrastructure for high efficiency, then where will the money and energy to do it all come from? And how long will it hold out? Without cheap energy to fuel the growth that is hoped to pay off the accumulated debt, austerity will become an everyday reality, not a short-term fix. A reality that slowly sinks in for the rest of our lives, as net importers become progressively poorer.
So, peering through the gloom, perhaps the best possible course of action that governments can take now is to prioritise the transition to the electron economy, which means renewable energy, EVs and the smart grid. Either that or we will all have to move to Norway.
