Monday, July 30, 2007

Losing Our Balance?

Interesting times, indeed. Oil (WTI) closed within one penny of the all-time record closing price of $77.03 last Friday. The markets seem shaken, and suddenly people are realizing that the recent explosion of derivatives may have created as much hidden rigidity as resiliency in our financial markets (as I wrote about here).

Mexico continues to reveal how deep its problems run. After my article on Mexico Collapse sparked quite a conversation on this topic, the meme of Mexico collapse spread quickly (though I don't take credit for that--the situation speaks for itself). One little gem was PEMEX's announcement late Friday that they will probably be out of oil in seven years--out of oil, not just beginning to decline. Notice how this came out on Friday afternoon. This is when you issue a press release when you want to bury a story.

And electricity seems to be a growing problem, at least in the third world (and those areas that the US military has transformed into the same). It is interesting to note that Jay Hanson (of notoriety) has always predicted that it would be electricity, not oil, that would be the actual cause of collapse. This seems quite plausible to me, though I still think that it will be fundamentally driven by declining oil production, with the resulting electricity-grid problems being best understood as an "above ground factor" stemming from oil. Oil is driving metal theft to new highs, which impacts the viability of electrical grids everywhere. Oil and natural gas prices makes it more difficult to maintain fuels for peak-generating capacity. Oil prices breathe life into infrastructure insurgencies everywhere, which repeatedly target electrical grids for their high return on investment.

Take a look, for example, of what has happened to the electrical supply situation in Baghdad, despite the impending success (sarcasm) of the current "surge" by US military forces there:

Ryan Crocker, the U.S. ambassador to Iraq, told the Senate Foreign Relations Committee last week that Baghdad residents could count on only "an hour or two a day" of electricity.

Interestingly, John Robb has picked up on this crisis in electrical grids around the world as a possible point of development for Africa--their grids are becoming so unreliable that African communities have the opportunity to lead the world in innovating a mode of modern civilization without grid electricity, and possibly export any success that they may have to the rest of the world. While I don't see Africa finding a profitable export market for their brand of grid-free living (admittedly, that isn't actually what Robb was suggesting), I do agree with Robb's assessment that we need to learn to build resilient communities--I've written about that, as well.

So, while CNN tells us (literally), "Don't freak out about the Dow," civilization seems to be stumbling on its balance beam at the moment. I called 2006 the "year of the balance beam"--meaning that everything would be fine as long as nothing significant happened. I called 2007 "Trending," as it seems to be the period where trends become clear--and, keeping with the metaphor, the balance beam grows steadily narrower. We are drawing precariously close to losing our balance--arms are flailing and we're collectively making those funny gyrations as we try to stay up. I'm guessing that my previous label for 2008, "Breakout," may have been better termed "Fall Off."


Big Gav said...

Yikes - I never thought I'd see Jay "Killer Ape Peak Oil" Hanson (the name of his latest lair) quoted here.

It was actually Richard Duncan who predicted the electricity grid would fail (the "Olduvai Cliff" theory), but that was based on oil supplies failing first.

He used to get JD riled up more than just about anyone:

That sort of peak oil doomerism makes me kind of nostalgic for my less cynical past.

I guess your "fall off" metaphor fits well with the Olduvai Theory, but I personally don't see any of these current power system failures as being peak oil driven (other than via the resource war intersection) - its more a matter of bad investment decisions coupled with a centralised power station mentality in countries that need to shed this habit and move to a distributed / renewables model (as per Robb's Africa example).

Given the rapid growth in electric power generation around the world in recent years its hard to see that the global grid is starting to fail just yet.

Jeff Vail said...

Good point--it was actually Richard Duncan's name that I meant to include, but somehow Jay Hanson got mixed up in there--does he really have a new web "presence"? Hmmm...

I agree that grid problems aren't a direct result of Peak Oil, but I think (as you suggested with the "resource war" note) that they are a very proximate result of Peak Oil. "Above Ground Factors" are a convenient cover story for factors that wouldn't be a problem if it weren't for peak oil.

I agree that grid problems are also exacerbated by bad investment decisions and centralized economic processes--where I think we part ways is that I think these are structural faults of large-scale human society, and have only been effectively repressed thanks to high-EROEI energy control in the West over the past few decades. Just like how a command economy is theoretically more efficient than a market economy IF you make all the right decisions, a sustainable and large-scale post-oil infrastructure is theoretically possible--but neither one is going to happen IMO. There certainly has been rapid growth in generating capacity, but it is put to shame by the even more rapid growth in infrastructure cost (bootstrap EROEI issues, security, metal costs, etc.), metal theft, infrastructure targeting by insurgencies, etc. I think we're passed diminishing marginal returns on such investment some time ago, and are very near the cusp (though not quite there yet) of diminishing aggregate returns. Almost by definition, the greatest investment and advances in grid capacity and capability will come right as we cross that cusp, as desperation to fend off diminishing aggregate returns on investment in the grid forces increasingly ineffective investment. Problems like a global debt crunch will only exacerbate these existing investment problems.

Big Gav said...

Yeah - you're right on where we part ways - I'm not convinced we've reached the point of diminishing returns yet.

Perhaps I'm just a techno-optimist on this point but I can see a lot of scope for improving the grid, increasing its scope and fueling it with a lot of renewable energy (more than we currently get from oil and coal).

I've also been burnt by an overly bearish disposition regarding the markets quite a few times and I've learned that its easy to call the top long before it actually occurs (if ever)...

Jeff Vail said...


Well, at least we seem to manage to disagree in a civil manner--I know that I respect and appreciate the work that you do compiling and commenting on news of potential technological solutions.

I think I need to dredge up Robert Anton Wilson again with his "maybe logic." Maybe we're at the cusp of irreversible collapse. Maybe we're at the cusp of technological innovation that will save civilization. Maybe an entirely separate third option will more closely match the future. All I can say with certainty is that it seems to me, for the time being, that the first scenario is the most likely.

Ultimately, I would most like to see a techno-solution to our problems, but ONLY if the incompatibility of human ontogeny and centralized, hierarchal civilization is listed among "our problems." Since that concern tends to be outside the perception of many techno-optimists (not necessarily including you in that group), I'm concerned that IF we manage a techno solution to our energy problems in isolation, we will only continue to exacerbate the incompatibility between modern civilization and human ontogeny. I can forsee scenarios where we don't solve our energy problems, but rather collapse, that are both better and worse than the techno-fix scenario.

All that said, who knows. I am trying to hedge my bets so that I don't put all my eggs in the "immediate collapse" basket. I own a suburban home, but have tried to hedge its value effectively with oil options. I am making plans for a self-sufficient existence that I will want in both scenarios: a) collapse, b) total techno-fix. I am simultaneously pursuing a new career that will be moderately "drough-proof" in the face of peak oil, but that will also pay dividends in the event of a techno-fix.

Oh, the other thing that I'm fairly certain of--the future will not be boring :)

Big Gav said...

I'm not trying to be a troll by the way (and I certainly wouldn't ever disagree with you uncivilly) - I appreciate the logic behind your scenario and I think you do a much better job of arguing it than Duncan does for example.

Still - there are lots of possible scenarios - I'm not so arrogant as to claim I know what the future holds - and to a certain extent I'm predicting the scenario I want to see (something I accused everyone else in the peak oil world of doing once upon a time).

At least you're hedging your bets - if we do suffer a genuine global collapse, I'm pretty unprepared and will have to rely on my wits - a frightening thought :-)

I do agree thats its worth keeping "maybe logic" in mind and coming up with solutions and strategies that work under as many scenarios as possible - then it doesn't really matter what happens.

I also agree that we need to reverse the trend towards over-centralisation and unwieldy hierarchies - though as my native culture is the tech industry I normally take it as a given that "big is bad"...

Anonymous said...

I've been reading your work for the last couple of months and I thank you for all your work and effort. As a youngster at 23 I don't have to many great insights to offer. I have been peak oil aware for 3 years and my intital instinct was to prepare for a crash, so I finished my degree in mechanical engineering and studied permaculture farming and other low technology production skills.
This mix has led me to work at a coal power plant in a rural farming area. From my experience the grid were I am at is far from being secure. Our company has increasing baseload demands that will not be filled with renewables and with current legislation nuclear and coal are pretty much out of the picture. Not to mention a total shortage of union workers to even do this kind of work. Apparently the plan is to install natural gas fired combustion turbines on a fairly large scale. I do not know the analysis behind this but it tells me that electrical market volatility is just around the corner.

Randy said...

Quoting La Prensa (Cuban govt press) and its interpretation of a Pemex announcement does not add credibility. The idea that Mexico will be "out of oil" in seven years is ludicrous. Even with a 15% decline curve in Cantarell field it will still be producing a half million barrels a day Cantarell is not the only field in Mexico. Does Mexico have problems, yes, is it going to be "out of oil", not any time soon.

Jeff Vail said...

I think that the Cuban press is no less biased than the American press, to be perfectly frank. Sure, IF Cantarell only declines at 15% per year (it's been over 18% recently), and IF Koo-Malub-Zaap comes on stream, they'll certainly be producing some oil for quite some time. However, it is not entirely unreasonable to think that they MAY stop producing entirely at some point in the relatively near future:

1. The cost of developing new fields (like KMZ) and maintaining production and secondary recovery in older fields (like Cantarell) is paid for by profits of Mexico's exports of oil.

2. The Export-Land scenario could rapidly see their domestic consumption exceed eat up their entire (declining) production, eliminating the source of funding needed to exploit their resources.

3. Guerrilla attacks, rising costs, etc. can accellerate that process.

4. All of these things, and other factors, may lead to exactly the kind of economic collapse that could bring production to a halt, not just to a trickle.

Bottom line: if we ignore "above ground factors," then yes, production will likely follow a pretty logistics-curve shape and trickle on ad infinitum. Ad reality back in to the equation and at some point it actually stops. That said, the Mexican official's statement was probably cautionary more than analytical, but I don't think it was that far off the mark. It is my opinion that there is a fair chance that 7 years from now Mexico produces no economically significant quantities of oil, and it is quite likely that 7 years from now they are no longer an exporting nation...

gilemon said...

though I don't take credit for that...

Tom Konrad said...

On the whole Gav/Vail debate of technological rescue vs. impending collapse... I expect that either could happen... perhaps with a partial collapse parcipitating the sociopolitical changes necessary to unleash the potential of technology to rescue us.

But when the outcome is highly uncertain, I think Jeff's strategy of preparing himself for either eventuality is the wisest. After all, if it all works out in the end, we'll be in pretty good shape even if we squandered resources by being overcautious... but in a collapse scenario, the cost of being unprepared is likely to be unbearable.

Sudden collapse may be unlikely, but we should take what steps we can which do not overly impede our ability to live and act in the present.

big gav said...

Did someone fart?

Big Gav said...

Cute - a teenage troll (not me if anyone was wondering) - is that you Smitty ?

Anonymous said...

He he he. Nope, wasn't me. But I am flattered that I'm still on your mind.

I did laugh when I read it though. I can't decide which is more comical; the comment, or your feeling the need to assure everyone it wasn't you who made it.

And if I'm a "teenage troll", boy what a time you had responding to a simple question from a "teenage troll" on our last exchange.

-Smitty Broham

Hurricane Jim said...

Hi Jeff,

Having multiple tours in Iraq I feel the need to comment on your take regarding electricity in Baghdad. First, the view is skewed in that most people take the view of power supply against the backdrop of pre-war levels. The problem with that is while there may have been power to the city, there wasn't a whole lot anywhere else. One of the things the Americans did was start evenly distributing the supply nationwide, especially into Shiite areas. This, of course, cramped Baghdad because there wasn't enough pre-war capacity in place to supply even that city 24-7. Divided amongst all the communities it got worse.

Then there was the systematic looting of just about every reconstruction effort that went up. With copper trading at what it is, many lines have had to be replaced two, three , four times because they keep getting pulled down and sold as scrap.

Then there's the systematic attacks on the infrastructure itself, both transmission and fuel. That alone has wreaked havoc on an already stressed system.

Then there's the Iraqi gov't (who believe it or not was indeed elected by Iraqis) who's sitting on some $30 something in oil revenue but can't seem to be bothered to spend any of it. Getting them to cut loose funds is neigh impossible. This includes payrolls for teachers to power workers.

Just thought I'd pass that additional, pertainent information along.

coronapub said...

I run a surf camp in Mazatlan, Mexico - East Pacific Surf Camp - and I am wondering why mexico's petroleum barons are not seeking to develop nuclear and wind power solutions to their oil crisis... to meet the growing demand for electricity. What is the problem ??

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