We’re killing our food supply and technology can’t save us

Farrell, Paul B. Feb 11, 2015. Opinion: We’re killing our food supply and technology can’t save us. Big Ag can’t feed 10 billion and magical technologies won’t appear.  MarketWatch.

We’re maxing-out on Peak Food. Billions go hungry. We’re poisoning our future, That’s why Cargill, America’s largest private food company, is warning us about water, seeds, fertilizers, diseases, pesticides, droughts. You name it. Everything impacts the food supply. Wake up America, it’s worse than you think.

The truth is Big Ag worldwide farm production can’t feed the 10 billion humans forecast on Planet Earth by 2050.

Conservative Greg Page, executive chairman of the Cargill food empire, has that great can-do spirit of capitalism: At $43 billion, Cargill is America’s largest privately held company. Listen to the future he sees coming: “Over the next 50 years, if nothing is done … crop yields in many states will most likely fall … the costs of cooling chicken farms will rise … and floods will more frequently swamp the railroads that transport food in the United States” … he wants American agribusiness to be ready.

But what if Cargill’s scientists are too optimistic, when arguing America’s agriculture sector is “well prepared to adapt to changes.” Former New York mayor, billionaire Michael Bloomberg, was skeptical of Cargill. The Times reported Bloomberg asking Page: “Do the technologies exist? Or are you saying they will someday, ‘as in, we know there will be a cure for cancer, but we have no idea when or how’?”

Yes, food is one of the biggest problems in the world: We already have trouble feeding the 7.3 billion people already here today. And it’s virtually impossible to feed another 3 billion by 2050, warns Jeremy Grantham, whose firm is an investment manager for $120 billion, and also funds the Grantham Research Center at the London School of Economics.

Bill Gates caps population at 8 billion people. Columbia University’s Jeff Sachs, head of the Earth Institute and a key adviser to the UN Secretary General, warns that five billion is the max Earth can sustain. Yet, at today’s trajectory, it’s 10 billion, a disaster waiting to happen.

The Bush Pentagon already warned us that by 2020 the planet’s “carrying capacity” will be so drastically compromised America’s war machine is already preparing military defense systems for the coming “all-out wars over food, water, and energy supplies.”

Grantham is not as optimistic as Page. Just the opposite, he reinforces the Pentagon’s worst fears, warning of an “inevitable mismatch between finite resources and exponential population growth” with a “bubble-like explosion of prices for raw materials,” plus commodity shortages that are a major “threat to the long-term viability of our species when we reach a population level of 10 billion,” making “it impossible to feed the 10 billion people.”

The planet’s “carrying capacity” cannot feed 10 billion people, so Grantham concludes: “As the population continues to grow, we will be stressed by recurrent shortages of hydrocarbons, metals, water, and, especially fertilizer. Our global agriculture, though, will clearly bear the greatest stresses.”

Agribusiness has the “responsibility for feeding an extra two to three billion mouths, an increase of 30% to 40% in just 40 years. The availability of the highest quality land will almost certainly continue to shrink slowly, and the quality of typical arable soil will continue to slowly decline globally due to erosion despite increased efforts to prevent it. This puts a huge burden on increasing productivity.” An impossible equation for Cargill.

Grantham believes “humans have the brains and the means to reach real planetary sustainability,” But “the problem is with us and our focus on short-term growth.” Our “human ingenuity” can even solve the energy problem, even shortages of metals and fresh water. Even solve the population demand problem without starvation, diseases and wars.

But agriculture is facing a huge loss of nonrenewable resources that technology cannot solve, so here’s why agriculture is the world’s No. 1 time bomb. And why American politicians damn well better start to deal with Grantham’s five constraints:

  1. We’re “running out completely of potassium (potash) and phosphorus (phosphates) fertilizers and eroding our soils … Their total or nearly total depletion would make it impossible to feed the 10 billion people …
  2. “Potassium and phosphorus (in fertilizer) are necessary for all life; they cannot be manufactured and cannot be substituted for …
  3. “Globally, soil is eroding at a rate that is several times that of the natural replacement rate …
  4. “Poor countries found mostly in Africa and Asia will almost certainly suffer from increasing malnutrition and starvation. The possibility of foreign assistance on the scale required seems remote.
  5. “Many stresses on agriculture will be exacerbated … by increasing temperatures … increased weather instability … frequent and severe droughts and floods.”

Grantham is skeptical of solutions based on the usual short-term thinking will work in the future: “Capitalism, despite its magnificent virtues in the short term, above all, its ability to adjust to changing conditions, has several weaknesses. Capitalism cannot deal with the tragedy of the commons, e.g., over fishing, collective soil erosion, and air contamination.”

Just the opposite, unregulated free markets just makes things worse.

And yet in today’s culture of science denialism, the “finiteness of natural resources is simply ignored, and pricing is based entirely on short-term supply and demand.” In short, the next few decades challenge a fundamental tenet of capitalism: That the public good is best served by the “invisible hand” of competing individuals, acting solely in their own separate special interests. No cooperation, no global solutions, it’s everyone for themselves, no restrictions. Unfortunately that’s a dead-end for everyone, a time bomb soon to explode.

Posted in Peak Fertilizer, Peak Food | Tagged , , , | 4 Comments

Conventional economic theory ignores the laws of physics

Preface. It’s the energy stupid!  These figures clearly show a link between energy and the economy. Conventional economic theory has to ignore energy or that would prove that there are Limits to Growth.  What follows is from Nafeez Ahmed’s 2017 book “Failing States, Collapsing Systems BioPhysical Triggers of Political Violence, Springer.

Alice Friedemann  www.energyskeptic.com  Author of Life After Fossil Fuels: A Reality Check on Alternative Energy; When Trucks Stop Running: Energy and the Future of Transportation”, Barriers to Making Algal Biofuels, & “Crunch! Whole Grain Artisan Chips and Crackers”.  Women in ecology  Podcasts: WGBH, Jore, Planet: Critical, Crazy Town, Collapse Chronicles, Derrick Jensen, Practical Prepping, Kunstler 253 &278, Peak Prosperity,  Index of best energyskeptic posts

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Fig. 4.1 Increasing Global Energy Consumption. Source : Gail Tverberg

 

Fig. 4.2 Exponentially increasing GDP. Source : J. Bradford Delong (1998)

Fig. 4.3 Correlation between Global Energy Consumption and GDP. Source : Gail Tverberg

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ahmed, Nafeez. 2017. Failing States, Collapsing Systems BioPhysical Triggers of Political Violence. Springer.

An issue largely overlooked within conventional economic theory is that all economic systems are fundamentally physical systems in which energy is transmitted and converted into different forms, in compliance with the second law of thermodynamics—and in which depletion must take place with respect to non-renewable energy resources due to the conservation of matter and energy.

Economic theory does not recognize that the laws of physics provide any meaningful constraint on the capacity of economies to grow continuously by forever increasing their material throughput. While there is scope to recognize that economic systems manifest “emergent properties” with their own distinctive rules, patterns and structures, that does not mean that these rules can be trivially deduced from—or break—the laws of physics. Rather, as with any complex system, the macro-structures emerge from but still operate within those laws. This means that however “emergent” the macro-structures of economics appear to be, they can never be free of the second law of thermodynamics (Pueyo 2014 ).

Thus, the direct correlation between economic growth and the growth of energy consumption is because economic growth is fundamentally dependent on and enabled by energy.

Human population, the global economy, and energy production have all “grown exponentially”,  yet energy still “imposes fundamental constraints on economic growth and development.

Why we appear to still be growing and why this will eventually lead to violence

Despite the empirical evidence for such conclusions, “these perspectives have not been incorporated into mainstream economic theory, practice, or pedagogy…” (J. H. Brown et al. 2011).

As a result, conventional economists failed to anticipate the 2008 global financial crisis, and since then have consistently failed to anticipate the major economic crises in ensuing years, while consistently and incorrectly forecasting returns to economic growth. In reality economic growth on a global scale is experiencing an unmistakable plateau, that correlates clearly with the emerging plateau in energy production (Fig. 4.4).

Fig. 4.4 Correlation between oil, energy and GDP. Source : Gail Tverberg

 

Fig. 4.5 Declining rate of economic growth. Source : Jean-Marc Jancovici

According to Jancovici, since the 1960s—which is when the EROI of the global fossil fuel system as a whole was at its highest according to most studies: “…the growth rate of the GDP per capita (world average) has been slowly—and constantly— decreasing…” (Jancovici 2013 ). In the decade after 1960, he calculates, GDP was increasing at +3.5 % per year. For the decade after 1970, this rate of increase dropped to +2 % per year. Over the last three decades, the rate of GDP growth dropped to +1.5 % per year. And in the period following the 2007–8 fi nancial crash up to 2012, it has dropped even further to 0.4 % per year on average (Fig. 4.5).

The steady decline in the rate of GDP growth thus correlates directly with the steady decline in EROI of production from the global fossil fuel resource base, even as energy production has continued to increase. However, as energy production has slowed down over the last decade since 2005—accompanying the shift to lower quality unconventional liquids—now approaching an undulating plateau, so too has GDP growth.

Consider this revealing diagram produced by Bloomberg, which illustrates how World Bank data confirms not only that economic growth is plateauing, but that it is likely to continue plateauing for the foreseeable future (Fig. 4.6)

Fig. 4.6 Plateauing of economic growth. Source : Bloomberg

Economic growth, to the extent that it has been able to continue, is being driven largely by an increasing availability of cheap credit—rather than any fundamental and permanent transformations in energy intensity. The ratio of global debt, excluding financial institutions, has grown from 175% of global GDP on the eve of the 2007/2008 financial crisis to 210% today. Cheap credit has enabled excessive borrowing, risk taking and sharply rising asset prices, driving the same form of unsustainable debt- driven growth that partly led to the 2008 financial crash (Stewart 2015).

Growth, especially since the 1970s, has been premised increasingly on the financialization of the economy through the creation of new instruments of credit creation to permit extensive leveraging.

Such debt-driven growth, however, only offsets the apparent biophysical limits to growth by accelerating debt and socializing the costs in the event of a financial crisis onto general consumers, while protecting the financial institutions most responsible for debt-generation. In the energy sector, as oil prices have slumped, growth has increasingly been driven by debt. Oil majors ExxonMobil, Royal Dutch Shell, BP, and Chevron hold a combined net debt of $184 billion, more than double their 2014 debt levels (Williams and Olson 2016).

Global industrial civilization is thus facing a convergence of crises: the plateauing of energy production and the plateauing of economic growth, amidst an inexorable decline in EROI.

While the abundance of cheap fossil fuels played the key role in permitting the expansion of the monetary and financial system—enabling exponential economic growth—from the 1950s onwards, the accelerating reduction in EROI has accompanied an increasing reliance on financialization: the shift from the expansion of money, to the expansion of credit (debt-money). Beginning concertedly in the 1970s, this has been most exemplified in the US Federal Reserve’s post-2008 rubber-stamping of quantitative easing to use money printing or credit creation (debt-money expansionism) as a mechanism to offset economic crises and bailout insolvent banks endangered by mass consumer defaults. The policy’s fiscal twin is austerity—clamping down on state expenditures in the form of public spending on infrastructure, education, health care and other forms of critical social investments and public services, while using state power to protect ongoing debt-based profiteering in the corporate-financial sectors (Smith-Nonini 2016).

The neoliberal era, with its policies of extreme deregulation, debt-money expansionism and harsh national austerity, is thus a direct product of the changing dynamics of the global energy system and the transition into a world of more expensive, lower quality, and environmentally more destructive fossil fuels. As the ‘triple crunch’ tightens from now to mid-century, this forces the global economy as a whole into adopting a limited range of policies to address the dampening of growth underpinned by geophysical realities.

Within a framework that continues to be wedded to the idea that business-as-usual must continue —one tied into protecting the vested interests whose tremendous power remains embedded within the unequal structures of the prevailing geopolitical, economic and energy order— the only options are to rely excessively on debt-money expansionism to shore-up dying industries in the fossil fuel and financial sectors, while intensifying austerity so as to socialize the costs of this onto the wider public, while privatizing the ‘benefits’ in terms of profits

Those profits, however, will accrue to an ever tightening circle of financial and corporate institutions as more and more of the energy- financial incumbency are squeezed out under the weight of their own unsustainability. The escalation of national austerity policies cannot be sustained for long without increasingly debilitating impacts on the health and well-being of wider publics. This means that phenomena such as the 2008 Occupy movement and the 2011 Arab Spring were not just historical blips that may or may not occur again, but represented major breaking points in the system due to populations feeling unable to adjust to intolerable conditions imposed by escalating global systemic crises. Such breaking points, then, represent a taste of things to come.

The 2008 global financial crisis was partly triggered by the oil price hikes that year, which were driven by the plateau in conventional oil production since 2005. High prices fed into inflation and undermined the capacity of consumers to service their mortgage debts, thus playing a key role in the ensuing spate of defaults (Ahmed 2010).

Economic growth, to the extent that it has been able to continue, is being driven largely by an increasing availability of cheap credit—rather than any fundamental and permanent transformations in energy intensity. The ratio of global debt, excluding financial institutions, has grown from 175 % of global GDP on the eve of the 2007/2008 financial crisis to 210% today. Cheap credit has enabled excessive borrowing, risk taking and sharply rising asset prices, driving the same form of unsustainable debt driven growth that partly led to the 2008 financial crash (Stewart 2015 ).

 

Posted in Limits To Growth | Tagged , , , , , | 3 Comments

Ugo Bardi predictions of the future from “Extracted”

Preface. This is just a small sampling of what Bardi thinks might happen post fossil fuels, mostly shortened and reworded.

Here are 7 other posts from this great book:

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report

***

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts:  KunstlerCast 253, KunstlerCast278, Peak Prosperity]

Bardi, Ugo. 2014. Extracted: How the Quest for Mineral Wealth Is Plundering the Planet. Chelsea Green Publishing.

When we can’t afford to commute we’ll live near where we work and walk.

Although the degrowth movement thinks a simpler society would make us happier and our lives less stressful, it’s likely we may spiral downward too quickly and revert to a purely agricultural society, not what most would call a positive result.

Only a tiny fraction of society accepts the degrowth philosophy, and unfortunately due to Jevons paradox, any resources saved are used up by someone somewhere else.

If we have forced degrowth, it’s likely to play out as in the Soviet Union in 1991 as described by Dmitry Orlov. After the collapse, soviet citizens life expectancy went down, abd increased rates of drug abuse, depression, and illness.   Security collapsed due to massive crime, the gap between rich and poor widened, social services declined, and Orlov sees signs of collapse in America already (also see his book Reinventing Collapse).

We might avoid the worst in terms of climate disruption [as fossils decline], but what about high-grade ores and the dispersal of the elements they contained all over the planet in forms that cannot be recovered without tremendous amounts of energy?

Most likely we return to an agrarian society. The big flare of fossil fuels will end up being just a short-lived episode—a peculiar moment of energy availability that generated a lot of commotion and movement but abated rapidly.  M. King Hubbert had already predicted this in 1976 in a paper titled “Exponential growth as a transient phenomenon in human history”.

Future agricultural civilizations will have to cope with badly depleted soil that was ruthlessly mined during the industrial age, which will take centuries, so global population will probably be much smaller than today.  At least our descendants won’t need as much stuff as now, and will be able to “mine” plenty of metals from aluminum beverage cans, copper from pipes, iron and steel from buildings and so on.

the only way to make new metals by smelting them, or making machinery, and the structures we have today will be limited by scarce wood resources and the charcoal to provide the heat and power. There’d be little choice but to go back to muscle power of humans and animals, unlikely to ever again restart an industrial revolution.

The planet has been “plundered to the utmost limit, and what we will be left with are only the ashes of a gigantic fire. We are leaving to our descendants a heavy legacy in terms of radioactive waste, heavy metals dispersed all over the planet, and greenhouse gases—mainly CO2—accumulated in the atmosphere and absorbed in the oceans.”

It appears that we found a way to travel to another planet without the need for building spaceships.  It is not obvious that we’ll like the place, but there is no way back; we’ll have to adapt to the new conditions. It will not be easy, and we can speculate that it will lead to the collapse of the structure we call civilization, or even the extinction of the human species”.

Posted in Ugo Bardi | Tagged | 6 Comments

Energy Crisis Booklist: EROEI, Peak oil, Peak coal, Peak natural gas, Nuclear, Kerogen, Methane hydrates

More booklists

Laws of physics

Professor Tom Murphy, at the University of California, San Diego has a free textbook showing the math and physics of why renewables can’t replace fossil fuels: “Energy and Human Ambitions on a Finite Planet. Assessing and Adapting to Planetary Limits“.

Overviews

  1. C Hall. Energy & the Wealth of Nations: Understanding the Biophysical economy 
  2. Alice Friedemann. When Trucks stop running: Energy and the future of transportation.
  3. Alice Friedemann. Life After Fossil Fuels: A Reality Check on Alternative Energy.
  4. M Inman. The Oracle of Oil: A Maverick Geologist’s Quest for a Sustainable Future
  5. J. Perlin, A Forest Journey: The Role of Wood in the Development of Civilization, 2005.
  6. C. Ponting, A New Green History of the World: The Environment & the Collapse of Great Civilizations, 2007
  7. R. Heinberg. The End of Growth. Adapting to our New Economic Reality. 2011.

Energy Returned on Energy Invested (EROEI)

  1. P Prieto & Charles A. S. Hall. 2013. Spain’s Photovoltaic Revolution. The Energy Return on Investment. Springer.
  2. D Murphy. The Net Hubbert Curve: What Does it Mean? 2009.
  3. J Lambert. EROI of Global Energy Resources Preliminary Status and Trends.  State  University of New York, College of Environmental Science and Forestry. 2012.
  4. C Hall. What is the Minimum EROI that a Sustainable Society Must Have? 2009.
  5. C Hall. Energy Return on Investment: A Unifying Principle for Biology, Economics, and Sustainability
  6. D Murphy, Energy return on investment, peak oil, and the end of economic growth, 2011.

Peak Oil

  1. Peak Oil is Here! World oil production peaked in 2018 (and 2nd chapter of Life After Fossil Fuels)
  2. German peak oil report: Armed Forces, Capabilities and Technologies in the 21st Century Environmental Dimensions of Security. PEAK OIL Security policy implications of scarce resources. Bundeswehr Transformation Centre, Future Analysis Branch. 2010.
  3. R Heinberg. Afterburn: Society Beyond Fossil Fuels
  4. K. Cobb. The only true metric of energy abundance: The rate of flow. 2013.
  5. R. Hirsch.  Peaking of World Oil Production.  Department of Energy. 2005.

Tar Sands & Heavy Oil

Peak Coal

  1. Wang, J. September 4, 2013. Chinese coal supply and future production outlooks [peak likely in 2024]. Energy 60: 204-214.
  2. R. Heinberg. The End of Cheap Coal. Nature 468. 18 Nov 2010.
  3. A. Friedemann. Coal: why it can’t easily substitute for oil. 2011.
  4. T. Patzek. A global coal production forecast with multi-Hubbert cycle analysis.  Energy. 2010.
  5. R. Heinberg. Blackout. Coal, Climate and the Last Energy Crisis. 2009
  6. A. Friedemann. Peak Coal is already here or likely by 2020 — if true — IPCC 100 year projections too high? 2013.
  7. New York Academy of Sciences. Full cost accounting for the life cycle of coal.  2011 pp 73-98
  8. R. Heinberg. Blackout. Coal, Climate and the Last Energy Crisis  2009

Peak Natural Gas

  1. D Hughes. Oct 27, 2014. Drilling Deeper. A reality check on U.S. government forecasts for a lasting tight oil & shale gas boom.  PostCarbon
  2. B Powers. Cold, hungry, and in the Dark: Exploding the Natural Gas Supply Myth. 2013
  3. D. Hughes. April 28, 2015. Has Well Productivity Peaked in the Nation’s Largest Shale Gas Play? Postcarbon.org
  4. SBC. October 2014. Factbook Natural Gas. [20-40% of recoverable resources are low EROI Sour Gas] SBC Energy Institute
  5. R Heinberg. Chapter 5 of How Fracking’s False Promise of Plenty Imperils Our Future: The Economics of Fracking: Who Benefits? October 2013.
  6. A Friedemann. Shale Oil and Gas Will Not Save Us. 2012.
  7. A Friedemann. Natural Gas pros and cons. 2011.

Peak Uranium

Oil substitutes

Nuclear Power

Nuclear Waste

Kerogen a.k.a. Shale Oil

  1. A. Friedemann. Shale Oil Overview. 2011.
  2. R. Udall. The Illusive Bonanza: Oil Shale in Colorado. 2005.

Methane Hydrates

  1. A. Friedemann. Why we aren’t mining methane hydrates now. Or ever. 2014.
  2. C. Nelder. Are Methane Hydrates Really Going to Change Geopolitics?  The Atlantic.  2013.
  3. Office of Naval Research Science & Technology. Fiery ice from the Sea. 2002.

Books about Energy

  • V Smil. Energy and Civilization A History
  • V Smil. Energy Transitions: History, Requirements, Prospects.
  • L Margonelli. Oil on the Brain: Adventures from the Pump to the Pipeline
  • V Smil. Power Density: A Key to Understanding Energy Sources and Uses
  • V Smil. Natural Gas: Fuel for the 21st Century
  • V Smil. Energy: A Beginner’s Guide

IPCC models assume exponential consumption of fossils until 2400

Other scientists who realize that we are on the cusp of energy decline have plugged in realistic amounts of fossils and found we don’t have enough oil, coal, or natural gas left for a hothouse 8.5 future, at worst 4.5 to 5.5 for 500 to several thousand years.

Tang, X. 2013. Depletion of fossil fuels and anthropogenic climate change: a review. Energy Policy, 52: 797-809

Short term solutions for energy decline

  • R. L. Hirsch. Peaking of World Oil Production: Impacts, Mitigation, & Risk Management       2005
  • Howard Bucknell III.  Energy and the National Defense. 1981
  • Department of Energy.  Standby Gasoline Rationing Plan. 1980

Alice Friedemann  www.energyskeptic.com  Author of Life After Fossil Fuels: A Reality Check on Alternative Energy; When Trucks Stop Running: Energy and the Future of Transportation”, Barriers to Making Algal Biofuels, & “Crunch! Whole Grain Artisan Chips and Crackers”.  Women in ecology  Podcasts: WGBH, Jore, Planet: Critical, Crazy Town, Collapse Chronicles, Derrick Jensen, Practical Prepping, Kunstler 253 &278, Peak Prosperity,  Index of best energyskeptic posts

FYI, I have two articles published on biofuels here:

  • Sheila Newman (ed)   The Final Energy Crisis           2008
  • Jacqueline Langwith, ed.        Opposing Viewpoints: Renewable Energy, vol. 2      2008
Posted in Book List | Tagged , | 7 Comments

Rob Mielcarski: You know you are in trouble when…

[ This is from the outstanding blog by Rob Mielcarski (un-denial.com) which you can see here.  I cant think of anything he’s left out…

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Derrick Jensen, Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report ]

Examples of denial are both profound and unacknowledged.

The short-term solution to our problems is the long-term cause of our problems: economic growth

The long-term solution to our problems is the short-term cause of our problems: reduced consumption

All political parties in all countries and almost all citizens, including the few citizens that understand our predicament, reject our best course of action: austerity

Most citizens have no idea how fortunate they are to be alive at this point in history: Blindspots and Superheroes

Despite wildly different beliefs about our predicament, there is one thing that almost everyone agrees on: I don’t want to change my behavior

The only problems society does not acknowledge, or discuss, or act on, are the only problems that matter: species extinction, limits to growth, debt, peak oil, overshoot, resource depletion, climate change, sea level rise, fisheries collapse & ocean acidification, nitrogen imbalance & tree decline 

Every country has similar economic problems and not one leader anywhere in the world connects the dots and publicly acknowledges the root cause, even after they leave office: declining energy surplus a.k.a. energy extraction cost + debt

Citizens believe the exact opposite of reality: technology creates wealth and energy rather than energy creates wealth and technology

Citizens misunderstand the root cause of social unrest and wars because the media presents these conflicts as political or economic problems and ignores their underlying forces: biophysical constraints

There is evidence that feedback loops are taking over and causing some problems to go exponential: climate change, CO2 emissions, ice loss, sea level rise, debt

The previous year’s worst case predictions are tending to become this year’s most likely prediction: sea level rise

Actions that improve the long-term worsen the short-term: air pollution masks 0.5C of warming, austerity and debt reduction, renewable energy, population reduction 

The only possible permanent solution is rejected by the belief systems of 90+% of citizens: population reduction

The only possible permanent solution is too slow to avoid the worst problems: population reduction laws

Countries fortunate to have a low birth rate often cancel their good fortune with immigration: Canada

The few people who understand the severity of our problems do not set good examples in their personal lives: leaders, climate scientists, environmentalists

History suggests that the consequence of not voluntarily contracting our economies as non-renewable resources deplete is an unthinkable war, so we don’t think about it: nuclear weapons

The quality of our leaders is declining because those people with high intelligence, wisdom, and integrity do not want to be in charge of our predicament, and because citizens are feeling the impact of overshoot, do not understand what is going on, and are angry: Trump

The leader of the free world denies science and issues daily, jaw-dropping, cringe-inducing tweets: Trump

The one world leader that did understand the problem and spoke out was rejected by the citizens and no longer speaks out: Jimmy Carter

We do not acknowledge that the world’s economic problems began with the peaking of a key non-renewable resource: conventional oil

Low energy prices have led citizens to believe we have a glut of fossil energy when in fact: all types of energy have peaked

We do not discuss or act on economic history research that shows countries always get into serious trouble when they permit an important ratio to exceed a threshold we long passed: debt to GDP

Bankers, the creators of money, do not understand the one thing that creators of money should understand: thermodynamics of wealth

The professionals with the most influence on public policy use models that violate the most trusted laws of physics: economists

The scientific theory that explains the relationship between the economy, energy, and climate is ignored by everyone that should understand it: Tim Garrett

The people who deserve the most respect and admiration get the least: scientists

The people who deserve the least respect and admiration get the most: celebrities

All types of non-fossil energy do not provide a substitute for the only energy we can’t live without: diesel for trucks, trains, ships, tractors, and combines, and mining machines; plus natural gas for fertilizer

People who think the shale revolution will make America prosperous and energy independent ignore one thing: facts and more facts

Intelligent people who understand the climate change threats, like James Hansen and Bill Gates, and who want business as usual to continue, know that nuclear energy is the only option, but they ignore a problem: peak uranium

If climate deniers continue to win elections and try to maintain the existing electric grid they’ll find that strategy may not work for long: peak coal

A key component of our infrastructure appears durable but is not: reinforced concrete

Citizens most vulnerable to a fragile global supply chain with only a few days of inventory experience the strongest illusion of abundance and security: inhabitants of large cities

The “green” revolution, which increased food production to enable 7+ billion humans, was and is entirely dependent on fossil energy, and has long-term consequences that will make a return to traditional agriculture very difficult.

Most citizens are not even vaguely aware of the invention that enabled their existence and created about 50% of the nitrogen in their bodies: Haber-Bosch conversion of natural gas to fertilizer

Well meaning environmentalists demand that we stop subsidizing fossil energy companies without understanding the source of all that they cherish in modern civilization: fossil energy

Well meaning environmentalists demand that we stop subsidizing fossil energy companies without realizing that many fossil energy companies are going bankrupt: ExxonMobil

A solution frequently advocated makes things worse by accelerating growth and decreasing system resilience: efficiency

The best solution for removing CO2 from the atmosphere is being harmed by the same activity that creates CO2: planting more trees which are then injured or killed by ground level ozone

All climate science models that do not predict disaster now depend on an unproven technology that we probably can’t afford and other species definitely can’t afford: BECCS (bio-energy with carbon capture and storage)

We have not acted to prevent a predictable and very dangerous side effect of trying to maintain business-as-usual with low interest rates: increasing wealth gap

We still enjoy historically vast surplus wealth that could be deployed to improve our future lives but we are squandering it: military, airports, highways, new cars, high rises, etc.

Earth with its diverse complex life and a highly intelligent species is extraordinarily rare, precious, and worth fighting to protect, yet we dream of other barren homes: colonizing Mars

The tool that could be used to unite citizens in common purpose and useful action is instead being used to create tribes that reinforce preexisting beliefs: internet

Many people are hurting and lashing out in anger because they do not understand the cause of their pain: Brexit, Trump, Syria, Venezuela, etc.

The few sources of information that understand and communicate the truth are under threat: fake news

Few people study or heed the best predictor of the future: history

The majority of citizens share a common characteristic that makes the election of an intelligent and wise leader empowered to do the right thing unlikely: wacky beliefs

None of our schools teach skills useful and relevant to our future: growing food and other forms of lower complexity life skills

The thing that enabled the evolution of our high intelligence and its ability to understand and act on problems is the same thing that causes our problems and prevents us from acting on them: denial of reality

The theory that best explains our existence and our self-destructive behavior is ignored by everyone, including those people seeking to understand our problems: Varki and Brower’s denial of reality theory

Posted in Conserve Energy, Critical Thinking, Population, What to do | Tagged , | 11 Comments

Why didn’t any white collar corporate criminals go to jail after the crash?

[ This is a book review with excerpts of “The Chickenshit club: Why the justice department fails to prosecute executives”.  Here is how the author Eisinger summarizes the problem and consequences:

“Businesses now have privileges not seen since the Gilded Age. Executives make more money than ever. Corporate profits are at record highs. The courts are expanding corporate rights, as companies exert great political power and dominate our policy discourse. But the most valuable perquisite corporate officers possess is the ability to commit crimes with impunity. Such injustice threatens American democracy. Today the justice system is broken.”

Eisinger takes the reader on a journey of the good old days, when S&L, insider traders, Enron, and other white collar criminals went to jail, and how this was done, the expertise the Justice department used to have and why they’ve now become timid and soft on corporate crime.

Now there’s no trial, no jail, just a settlement amount.  The only payment is a fine – money subtracted from the shareholders, reduced wages, and increased consumer prices.  This does absolutely nothing to reform business, quite the opposite.  Not only is there no jail time, but executive retirement packages remain intact, there are no claw backs, no reason not to get even more greedy, and the company can write off some of the fine, since it’s tax deductible, and banks could earn credits for building affordable housing or helping mortgage holders, subtracting from the fine owed further.

Nor are there more regulations, or licenses pulled to enforce good behavior in the future.  

I think this is an important book because corruption will accelerate the consequences of declining oil and in and of itself makes it more likely that another crash and the end of democracy will happen sooner rather than later.

Here are some, but not all, of the reasons why CEOs and other high-level executives didn’t go to jail:

  1. Lack of staff, time, and expertise to flip lower level employees upward to the top
  2. The lack of technology made the DOJ far less effective and productive. The DOJ was woefully behind private industry. In 2003, the DOJ had old computers, no blackberries, no document management system, and no way even to email the FBI agents assigned to the investigation. With this pathetic setup, they were taking on the infernally complex company Enron in the most important corporate fraud case in memory, against a legion of defense lawyers from the best firms in the world.
  3. The decisions that led to getting a fast enormous monetary award being better than a slow many years-long trial
  4. The FBI used to help the Justice department, now their main focus is Homeland Security; a huge loss of expert investigative staff
  5. Of the 94 offices, the Southern District of New York, has the smartest and ablest prosecutors in the land. The other 93 are less competent.
  6. The rich and powerful are able to hire better paid and prepared lawyers than Department of Justice lawyers
  7. Banks and Wall Street increasingly rewrote financial rules for politicians to enact into law that made what were once illegal acts legal or arguable
  8. More was discussed live and less in emails to evade leaving a trail for the prosecution
  9. Public Relations firms were paid huge sums to spin positive news on the “bad” corporation.
  10. Prosecutors who took a hard line risked never getting more lucrative jobs in industry. Sheila Bair, who had headed up the FDIC and challenged the Obama administration over its bank bailouts, could not land a prominent corporate or administration position.
  11. Large fines did little to deter corporations from breaking the law. “Over 50% of the most serious fraud and larceny culprits were recidivists, about the same as robbery and firearms offenders and far higher than drug traffickers.”
  12. Settlements have another downside: they weaken prosecutorial skills, which over time becomes lost knowledge. Settlements breed investigative laziness and erodes trial skills.
  13. Many prosecutors are wealthy and were in their class, perhaps even their friends or in school together
  14. It’s risky to go to trial and have a hung jury
  15. Corporate responsibility is diffused; the top leadership of giant corporations make few day-to-day decisions and none without the advice of lawyers and accountants.
  16. Time and again, the government went after only one low-level employee.
  17. Proposals to expand prosecutorial power over white collar crime, extend the statute of limitations, expand the criminal code, expand the ability to punish corporate officers who harmed public health and safety, bank failures and their consequent job losses and economic devastation. None of these proposals were ever enacted.
  18. The justice department set up a new layer of bureaucracy, a compliance office, to evaluate corporate cooperation. Sounds good, but this extra layer made it even harder to bring cases against corporations or high-level individuals.
  19. A broad coalition of corporate interests led a fight against prosecutorial power. They forced the Department of Justice to stop using their tools and techniques to investigate companies.
  20. Trump made matters worse. He fired Sally Yates, the architect of the DOJ’s attempt to improve its prosecution of corporate crime. He appointed men who would eviscerate the Consumer Financial Protection Bureau and get rid of Dodd-Frank
  21. Senior officials take a pass on indictments because they are too inexperienced to judge the evidence. As the abilities of the FBI, SEC, and Justice Department corrode, they make blunders. The blunders make them more reluctant to pursue riskier paths such as prosecutions of powerful and well-defended individual corporate executives, which leads to more mistakes
  22. Corporate whistle-blowers had it even worse. Their lives were never the same. They faced divorce, financial ruin, and joblessness. They wondered whether it had been worth it. They wondered why they had been disbelieved so often by government investigators—when they had been interviewed at all.
  23. The Justice Department has been hurt by budget constraints and less help from the FBI, which used to conduct investigations for the department, but after 9/11 focuses on antiterrorism. The Justice Department has kept track of white-collar cases only since the early 1990s.
  24. Judges all over the country made generous interpretations of the law, broadening corporate and executive rights and privileges, narrowing white-collar criminal statutes, and repeatedly overturning federal prosecutors in notable white-collar cases. Over the last decadethe courts have repeatedly decided in favor of corporate top executives over the government.
  25. Large and powerful corporations, under the advice of their expensive defense lawyers, were eager to appear cooperative and wrap up investigations quickly, before prosecutors uncovered more damning information.
  26. The culture of the Justice Department changed. They came to view the highly successful Enron prosecutors as reckless and abusive, when in fact it requires being sufficiently aggressive to flip each rung in the corporate hierarchy. This was once a basic tool of prosecutors that are now rarely used, in favor of speedy fines.
  27. Big Law corporatized white-collar criminal defense, working more often in symbiosis with prosecutors than as adversaries. These lawyers, not the government, conducted extensive and lucrative investigations, delivering their findings to the government and moving on to the next.
  28. In the four years from 1992 through 1995, white-collar cases averaged 19% of overall cases. In the four years from 2012 to 2015, that number had fallen to just under 9.9%. And the Department of Justice wasn’t just going after fewer cases, but easier cases. In 2016 the Department of Justice brought the lowest number of white-collar cases against individuals in twenty years, on track for just 6,200 cases, down more than 40% from 1996—despite population and economic growth.
  29. I have a friend who was a white collar defense attorney. He told me their clients had enormous amounts of money, and could hire the best lawyers. They usually weren’t even paying the fees out of their own pocket – the company covered their legal expenses. His defense firm was one of the best in the Bay Area, and easily beat the prosecution, over and over again.  The money also paid for mock trials where fake juries were paid to vote on which arguments worked the best

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Derrick Jensen, Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report ]

Jesse Eisinger. 2017. The Chickenshit club: Why the justice department fails to prosecute executives. Simon & Schuster. 400 pages

The Department of Justice is a loose federation of 94 offices around the country, each a realm unto itself, run by a US attorney who is almost untouchable by headquarters in faraway Washington, DC. Of all those offices, the Southern District of New York, located at the bottom tip of Manhattan, has the smartest and ablest prosecutors in the land. Any alum of the office will be happy to verify that.

The Department of Justice does not merely struggle to prosecute top bankers. The problems go beyond the financial crisis and beyond the financial sector.

Walmart found through its own internal investigation at least $24 million in suspicious payments. The lead agent on the probe determined that American and Mexican laws had probably been broken. Then, the report went on to demonstrate, Walmart’s leaders, including then CEO H. Lee Scott Jr., kiboshed the investigation. Barstow won a Pulitzer for the stories the following spring.

After the New York Times approached Walmart but before the story came out, the company reported itself to the Department of Justice for possible violations of the FCPA. The retail giant had known about the bribery allegations but had shown little inclination to reveal itself to the government until the Times forced the matter. The Feds initiated an investigation. The Walmart investigation generated a cornucopia for law firms. The retailer spent upward of $700 million on legal advice and compliance improvements. All that money was well spent. The Justice Department’s probe proceeded slowly. The government was frequently stymied. Many of the allegations involving Mexico were old. The statute of limitations had run out. The Mexican government barely cooperated, ignoring the Department of Justice’s official requests for assistance for years. Walmart seemed to have had troubled operations in other countries as well. Justice Department officials investigated its activities in India, China, and Brazil. The department tried to put resources into the case. There were two prosecutors from the Eastern District of Virginia and three from Main Justice. But early on, prosecutors couldn’t get the FBI or the IRS engaged. The agencies did not prioritize the case.

After two years, Walmart eased out at least eight executives who had been involved in the suspicious activities or had been alerted to them. Their retirement packages, however, remained intact. The Department of Justice probe lasted years but slowed dramatically by 2015. In October of that year, the Wall Street Journal reported that the federal investigation found no serious violations. That Walmart made its changes and avoided any charges or even a deferred prosecution settlement suggested that the gentle farewells had been carried out with at least the tacit approval of the government. One of the biggest corporate scandals in years faded away to nothing.

After two years, Walmart eased out at least eight executives who had been involved in the suspicious activities or had been alerted to them. Their retirement packages, however, remained intact. The Department of Justice probe lasted years but slowed dramatically by 2015. In October of that year, the Wall Street Journal reported that the federal investigation found no serious violations. That Walmart made its changes and avoided any charges or even a deferred prosecution settlement suggested that the gentle farewells had been carried out with at least the tacit approval of the government. One of the biggest corporate scandals in years faded away to nothing.

Similar problems plagued the corporate investigations into Toyota (for the unintended acceleration problems with its cars) and General Motors (faulty ignition switches). Toyota did not cooperate fully with the Southern District’s investigation. As for GM, the Department of Justice could not identify any executives who had the full picture of the carmaker’s problems and responsibility for fixing them.

Even dedicating resources does not bring success. After the Deepwater Horizon platform exploded in 2010, killing 11 people and causing the largest oil spill off the US coast in history, Lanny Breuer gathered together a task force to investigate. BP paid $4 billion in criminal penalties and pled guilty. But by early 2016, the task force had come up almost entirely empty against individuals. It had started by charging low- and midlevel executives with a variety of crimes, but began withdrawing charges and dropping executives from its cases as courts ruled against it. The government ended up withdrawing manslaughter charges against two midlevel supervisors. Some of the cases were dismissed. Finally, the Justice Department lost three trials against executives.

Even supposed triumphs against corporate executives often underwhelm. In late 2015, the Justice Department brought coal baron Don Blankenship, CEO of Massey Energy Company and a power in West Virginia, to trial for his role in creating unsafe conditions at the Upper Big Branch mine, the site of a terrible explosion that killed twenty-nine miners in 2010.

The jury found Blankenship guilty, the first conviction of a top executive for a workplace safety violation. But the success was tempered. Massey was not in the Fortune 500 and presented an easier target than, say, a Goldman Sachs or JPMorgan executive. More troublingly, the jury found Blankenship guilty only on one count of conspiracy, a misdemeanor for breaking federal safety rules, and exonerated him on two other felony counts. Even with a local jury made up of people supposedly sympathetic to dead miners, such cases don’t go smoothly. The judge sentenced Blankenship to one year in prison, the maximum allowed by law. People hailed the result, relieved that at least yet another CEO wasn’t getting off. But for a man who had been so cavalier about jeopardizing the lives of his employees, one year seems paltry.

Defenders of the Department of Justice maintain that these failed corporate investigations did not indicate a lack of will or skill. They highlighted the inherent difficulties with prosecuting corporate crime. Corporate responsibility is diffused; the top leadership of giant corporations make few day-to-day decisions and none without the advice of lawyers and accountants. They say that prosecutors didn’t make cases because there were not cases to make. But then the Department of Justice started changing its corporate investigative practices and policies. In making these shifts, the department tacitly admitted that its past actions were indeed wanting. The age of deferred prosecution agreements gave way to what we have today: prosecutors and the SEC, responding to criticism from Judge Jed Rakoff, academics, the media, lawmakers, and activists, made companies admit wrongdoing and plead guilty.

The government now assigns corporate monitors to oversee its settlements more frequently. By early 2016, the 2008 crisis had resulted in nearly $190 billion in fines and settlements from 49 separate financial institutions. These new arrangements are no more satisfying than the previous period’s. The fines continued to hit the shareholders, not the wrongdoing executives. Prosecutors almost never named any individuals. Portions of the penalties often were tax deductible (since they were partially disgorging profits). All the big banks lined up to make mea culpas over mortgage securities misdeeds. For mortgage securities abuses, JPMorgan paid $13 billion, Bank of America paid $8.5 billion, and others paid giant sums. The big banks paid up for foreclosure abuses; for manipulating interest rates and foreign exchange rates; for trading with sanctioned countries; for money-laundering-monitoring failures; and for conflicts of interest in their research activities.

But many of these settlements became less impressive once the particulars came out. The banks could earn credit for building affordable housing or helping mortgage holders, earning bonus dollars for each dollar actually spent. Perhaps worst of all, the department’s statements of fact that went along with these settlements were terse documents that contained little detail about who did what to whom and when. The banks wrote checks and in exchange won the ability to shield their executives from punishment and the specifics of their activities from the public eye.

Prosecutors took extreme measures to minimize the regulatory consequences for a guilty plea. Regulators did not pull licenses. They did not ban them from government programs. The guilty pleas had only symbolic value. They lacked force just as much as the old settlements did.

The Yates memo was seen for what it was: an implicit critique of the previous Holder administration and a tacit admission that it had not done enough to prosecute top executives. Yates created new policy: the department had to go after individuals again. The key element of a corporation’s cooperation, the memo stated, was to identify individuals who had done something wrong. Without naming the people responsible, a company could not get credit for cooperation and softer penalties. Some critics welcomed the new policy but with caution. What individuals would corporations be required to finger? How would the Justice Department prevent a company from scapegoating some low-level schnook? In the SEC case on Abacus, the agency had been satisfied to go after Fabrice Tourre and no one else. Time and again, the government went after only one low-level employee, a “lone gunman theory” of corporate crime. Would the Yates memo change this practice? Would the department’s investigations go high enough, to the boardroom and the top corporate offices? Would prosecutors still be overly reliant on Big Law’s internal investigations of its clients?

The department even undermined these minor improvements. At the same time that it issued the Yates memo, Main Justice also set up a compliance office to vet corporate cooperation. The ostensible aim was to determine whether companies were cooperating or not and whether they were receiving due credit. The effect would be to add to the bureaucracy. The move added yet another layer of evaluation for investigations, making it harder to bring cases against either corporations or high-level individuals.

The Yates memo suggested that the Justice Department’s policy had changed, but had it altered the way the department conducted business? The answer soon appeared to be no. In the first year of the Yates memo, the DOJ scored few obvious successes. When it brought a civil action against Goldman Sachs in 2016 for mortgage-related wrongdoing in the lead-up to the financial crisis, the Department of Justice named no individuals. The government charged individual executives from Volkswagen for having faked its emissions tests, but it did not appear likely to charge top officials at the German carmaker.

BACKLASH.  A broad coalition of corporate interests had led a fight against prosecutorial power in the post-Enron period. After Enron, Arthur Andersen, WorldCom, Adelphia, and Tyco, corporations, their lobbyists, and the white-collar defense bar revolted. They forced the Department of Justice to roll back the Thompson memo, depriving the government of tools and techniques to push corporate investigations. Over the decade, these interests changed the way the government enforces the corporate criminal code.

Now the same forces gathered again to fight the Obama administration’s initiatives. Modest as the corporate guilty pleas and the Yates memo were, the corporate lobby recognized a new danger: the government understood how inadequate its corporate investigations were. And so, in response to the reforms of the post-financial-crisis era, the same interests tried to roll out the same campaign from more than a decade earlier. Why shouldn’t the defense bar go back to the exact same playbook it had employed then? It had worked.

Former members of the Obama administration, now working for corporations, attacked the Yates memo.

Some reformers hoped to expand prosecutorial power when it came to white-collar crime. They discussed extending statutes of limitations and expanding the criminal code. In health and public safety, prosecutors can charge responsible corporate officers criminally (with a misdemeanor). It does not matter if they were not aware of the problems. Some argued to expand that into other sectors, such as finance. Bank failures could cause job losses and economic devastation. Perhaps bankers who drove their institutions to disaster merited such punishment. None of these proposals made progress.

With Donald Trump in office, corporations have an even friendlier Washington despite his populist rhetoric and pitch as the champion of the working class. He fired Sally Yates, the architect of the DOJ’s attempt to improve its prosecution of corporate crime.

His appointees came from corporate boardrooms and Wall Street, especially Goldman Sachs. Meanwhile, Republicans moved to gut regulations, especially those reining in the banks, seeking to eviscerate the Consumer Financial Protection Bureau and roll back Dodd-Frank.

Jefferson “Jeff” Sessions III took over the DOJ, promising to pull back on its aggressive civil rights enforcement and go after voter “fraud,” a Republican obsession and vehicle for voter suppression. The incoming SEC chairman, the Sullivan & Cromwell partner Walter J. “Jay” Clayton, boasted Goldman Sachs as a loyal client and had few public views on securities enforcement, except that the government had gone too far in pushing the FCPA anti-bribery law, passed in the wake of Stanley Sporkin’s enforcement push in the 1970s. Any hope for tougher corporate enforcement appears laughably misplaced.

Breuer and his supporters believed he had overseen a significant upgrade in talent, recruiting a class of attorney that Main Justice hadn’t been able to secure in the past. He had commanded the first guilty pleas from banks in decades, overseen investigations into currency and interest rate fixing, guided major public corruption cases, and set up the BP Task Force in the wake of the Deepwater Horizon disaster, which supporters praised for having won a guilty plea and large fine from the company itself. He received little credit for any of those measures, however. In a maddening turn of events for him and his loyalists, Breuer left the Justice Department having become the face of the department’s inability to bring cases against Wall Street. That was unfair. The problem was much greater than one man.

In September 2013 James Comey, who had talked so bravely about not being chickenshits at the beginning of the century, took a job as Obama’s FBI head. His interventions during the 2016 presidential campaign soiled his hard-won reputation, perhaps permanently. In July of that year, he gave an unusual press conference chastising Hillary Clinton for her handling of her email scandal, while explaining why he wasn’t recommending criminal charges in the matter. Prosecutors were appalled, viewing it as a grandstanding spectacle. Good prosecutors do not explain their declinations publicly. To smear the subject of an investigation while passing on charges is regarded as unethical.

Then Comey reopened the Clinton email investigation 11 days before the election, after the FBI had found new emails—which were not even on her computer, but disgraced former Congressman Anthony Weiner’s, who was married to Huma Abedin, a Clinton aide. Comey alerted Congress before agents had reviewed the emails, violating long-standing FBI and Justice Department policy not to go public about investigations right before elections. The FBI closed the matter soon after as the email trove contained nothing new. But the damage to the Clinton campaign was done.

Bad judgment, acts of prosecutorial abuse, fears of losing—all could be seen as products of the eroded investigative skills. A senior official goes rogue, as Comey did, because he doesn’t have enough faith in the customs of his institution. Abuses happen when a prosecutor doesn’t have a strong enough case but goes forward anyway. Senior officials take a pass on indictments because they are too inexperienced to judge the evidence. As the abilities of the FBI, SEC, and Justice Department corrode, they make blunders. The blunders make them more reluctant to pursue riskier paths such as prosecutions of powerful and well-defended individual corporate executives, which leads to more mistakes. Those who fought hard against the large corporations incurred costs, not rewards. They often left with diminished status and did not alight on such prominent perches as Breuer’s. The people who broke with the prevailing culture, such as Paul Pelletier and James Kidney, were pains in the ass and made life difficult for their bosses. Often the people who do so—the whistle-blowers at companies and the prosecutors who take on the powerful—share a character flaw: they don’t play exactly by the unwritten rules, they lack diplomatic skills, and they don’t understand how to preserve their viability, either within the bureaucracy or for their next job. Their righteousness offends others. Most people act in their own self-interest. They do not. A reputation for toughness was not its own reward.

Justin Weddle, who had suffered public criticism from a judge in the KPMG case, struggled to find work in private practice. Stanley Okula, also a key prosecutor in the KPMG case, stayed at the Southern District—a lifer whom defense attorneys felt free to criticize because he had been assailed by judges. Shirah Neiman, the long-serving and unrelenting government lawyer, was pushed out of the Southern District of New York.

Corporate whistle-blowers had it even worse. Their lives were never the same. They faced divorce, financial ruin, and joblessness. They wondered whether it had been worth it. They wondered why they had been disbelieved so often by government investigators—when they had been interviewed at all.

Those who took on the large financial institutions from other government roles also suffered. Sheila Bair, who had headed up the FDIC and challenged the Obama administration over its bank bailouts, could not land a prominent corporate or administration position.

Ben Lawsky, the former Southern District prosecutor who had risen to become the head New York State financial regulator and had miffed his fellow regulators and the banks with his aggression, did not take a job at a top law firm. One chairman of a major New York firm said the New York bar had blackballed him.

Judge Jed Rakoff had a tough time as well. His rulings faced legal setbacks. In 2016 a panel of the Second Circuit Appeals Court threw out a verdict in a civil fraud trial that Rakoff had presided over. The Southern District had brought charges against Countrywide Home Loans, the mortgage bank, for deceptive mortgages it had sold to mortgage giants Fannie Mae and Freddie Mac. The government had also brought charges against one midlevel executive. The jury found the company, now owned by Bank of America, and the executive liable. In reversing the jury, the appellate panel criticized Rakoff’s jury instructions. It determined that the judge had erred in his definition of fraud. The panel wrote that since Countrywide had not intended to commit fraud at the time the contracts with Fannie and Freddie were written, the government had not met the standard of proof. Countrywide had intentionally breached its contracts, but that did not constitute fraud.17 Prosecutors at the Southern District and Rakoff found the decision ridiculous. The Southern District petitioned the panel to review it, a request the higher court rejected.

The Southern District’s founding, in 1789, predates that of the Department of Justice itself. The office held its first criminal trial in 1790, which lasted a day. The first US attorney convicted two men of conspiring to destroy a brigantine and murder its captain and a passenger. The second US attorney simultaneously served as mayor of New York City. Today the office specializes in the most complex and difficult criminal cases: corporate white-collar fraud, often securities law violations. Insiders relish its nickname: the “sovereign” district, for its penchant for claiming jurisdiction over any such case from any corner of the United States, the other 93offices be damned.

But it takes something even more to get to the Southern District; something more personal. Someone somewhere—a top partner at a law firm, a respected judge or professor—had to send the signal. That sign indicated the candidate wasn’t just special; he or she was a superstar in the making. The Manhattan US Attorney’s Office launched the careers of judges and legal giants of every kind; politicians (New York City mayor Rudolph Giuliani and Representative Charles Rangel); cabinet secretaries (Henry Stimson, the US secretary of war under presidents William Howard Taft, Franklin Delano Roosevelt, and Harry Truman); a US attorney general (Michael Mukasey); FBI directors (Louis Freeh); and two Supreme Court justices (Felix Frankfurter and John M. Harlan II).

America’s economic history has unfolded in a series of booms followed by busts followed, crucially, by crackdowns. After the stock market crash of 1929, congressional hearings channeled public outrage and resulted in landmark laws regulating Wall Street and creating the Securities and Exchange Commission in 1934. A few years later, the new SEC helped put the head of the mighty New York Stock Exchange (NYSE) in prison. Though inconsistent, the SEC over the intervening decades emerged as one of the most respected government regulatory bodies. The SEC is the country’s most important corporate regulator, overseeing publicly traded companies and the nation’s capital markets.

After the savings and loan scandals of the 1980s, when hundreds of small banks across the country failed due to reckless real estate loans, the Department of Justice prosecuted over 1,000 people, including top executives at many of the largest failed banks.

After the Michael Milken–run junk bond boom and blow-up of the late 1980s, prosecutors spent years digging up evidence of stock manipulation and insider trading at major investment banks and law firms, prosecuting some of the most powerful Wall Street figures of the era.

In the early 2000s, the burst Nasdaq bubble revealed a corporate book-cooking pandemic. Top officers from giants such as Enron, WorldCom, Qwest Communications, Adelphia, and Tyco International ended up in prison.

By contrast, after the 2008 financial crisis, the government failed. In response to the worst calamity to hit capital markets and the global economy since the Great Depression, the government did not charge any top bankers. The public was furious. The bank bailouts and lack of consequences for bankers radicalized both ends of the political spectrum and gave rise to two of the most potent social movements of our time: the Tea Party and Occupy Wall Street. Anger about the lack of Wall Street accountability seeded disenchantment with Obama.

According to a Wall Street Journal analysis of 156 criminal and civil cases brought by the Justice Department, the Securities and Exchange Commission, and the Commodity Futures Trading Commission against 10 of the largest Wall Street banks since 2009, in 81% of the cases, the government neither charged nor even identified individual employees. In the remainder, the government only charged 47 low and midlevel employees with just one boardroom-level executive, whom the SEC charged civilly.

In his own incoherent and superficial way, Donald Trump rode anger about Wall Street throughout his campaign, railing at bank power. He closed his campaign by hinting poisonously about a cabal of global bankers rigging the system. He assailed politicians who were “owned” by Goldman Sachs: first Ted Cruz in the primary and then Hillary Clinton in the general. The Republican platform called for breaking up the big banks by returning to the Glass-Steagall Act, the Depression-era law that split commercial banking from investment banking, a reflection of resentment about the government bailout of the financial system as bankers wriggled free. No sooner had Trump taken office then he rushed to stuff members of that cabal into his White House and cabinet. He and the Goldman alumni who advised him moved within days of taking office to unravel Dodd-Frank and loosen restrictions on corporations generally.

Today’s Department of Justice has lost the will and indeed the ability to go after the highest-ranking corporate wrongdoers. The problem did not begin in the aftermath of the 2008 crash—and it has not ended. Prosecutors don’t simply struggle to put executives for “Too Big to Fail” banks in prison. They also cannot hold accountable wrongdoing executives from a gamut of large corporations: from pharmaceuticals, to technology, to large industrial operations, to retail giants.

A little-understood shift in how the government prosecutes white-collar corporate crime has happened. After the post-Nasdaq-bubble prosecutions of the early 2000s, the Justice Department began to suffer fiascos, losses in court, damning acts of prosecutorial abuse, and years of intense lobbying and pressure from corporations and the defense bar to ease up. Prosecutors lost potent investigative tools and softened their practices, changes that have made it harder to gather evidence and conduct even the most basic investigations.

Compounding this issue, the Justice Department has been hurt by budget constraints. The FBI, which usually conducts investigations for the department, shifted resources to anti-terrorism efforts in the wake of 9/11. The Justice Department has kept track of white-collar cases only since the early 1990s. In the four years from 1992 through 1995, white-collar cases averaged 19 percent of overall cases. In the four years from 2012 to 2015, that number had fallen to just under 9.9 percent. The Department of Justice wasn’t just going after fewer cases, but easier cases.

Judges all over the country embarked on newly generous interpretations of the law, broadening corporate and executive rights and privileges, narrowing white-collar criminal statutes, and repeatedly overturning federal prosecutors in notable white-collar cases. The Supreme Court has expanded the rights of corporations in the most potent, visible fashion, but lower courts have contributed to the trend. Over the last decade, while draconian when it came to street criminals, the courts have repeatedly read the US Constitution expansively when the government tried to charge corporations or their top executives.

To compensate for these changes, the Department of Justice shifted from targeting individual corporate executives with trial and imprisonment. Instead, prosecutors switched to a regime of almost exclusively settling with corporations for money.

Since 2001, more than 250 federal prosecutions have involved large corporations. These include some of the biggest names in corporate America: AIG, Google, JPMorgan Chase, and Pfizer among them. The majority of these have been negotiated deals, not indictments. From 2002 through the fall of 2016, the Justice Department entered into 419 such settlements, called deferred prosecutions and non-prosecution agreements, with corporations.

Meanwhile, corporate prosecutions fell. The Justice Department prosecuted 237 companies in 2014, 29% below the number in 2004.These prosecutions tended to be of tiny, inconsequential companies.

Large and powerful corporations, under the advice of their expensive defense lawyers, were eager to appear cooperative and wrap up investigations quickly, before prosecutors uncovered more damning information. They could pay settlements with other people’s money: that of their shareholders.

Big Law corporatized white-collar criminal defense, working more often in symbiosis with prosecutors than as adversaries. These lawyers, not the government, conducted extensive and lucrative investigations, delivering their findings to the government and moving on to the next.

Prosecutors, for their part, could generate headlines with eye-popping dollar amounts and set themselves up for lucrative careers in the private sector. And they hadn’t had to go to court to prove their case. The bigger the penalties, the more headlines they grabbed, and the more appealing they became to the prosecutors who could name their price.

These settlements did little to deter corporations from breaking the law. “Over 50% of the most serious fraud and larceny culprits were recidivists, “about the same as robbery and firearms offenders and far higher than drug traffickers.

Corporate settlements were easier to reach than indictments of individuals, particularly top executives.

In 2016 the Department of Justice brought the lowest number of white-collar cases against individuals in twenty years, on track for just 6,200 cases, down more than 40% from 1996—despite population and economic growth.

Investigations and prosecutions of people are much more difficult than going after corporations. Prosecutors began to see probes of single human beings, one by one by one, as a slog; nasty trench warfare that carries a risk of humiliation if they lose. Investigations of individuals consume more time. Investigators must work slowly, first going after lower-level employees and then flipping them against their bosses. To their bosses at the Department of Justice, prosecutors who pursue individuals appear less productive. Investigating top executives at large corporations is more difficult because they insulate themselves from day-to-day decision making. Prosecutors find it harder to accumulate the evidence necessary to prove their cases beyond a reasonable doubt. And individuals have greater incentive to fight prosecutors.

Defaulting to a settlement with a corporation without prosecuting individuals corrodes the rule of law.

Companies argue that the government has extorted them into forking over money for unproven crimes.

The public, meanwhile, sees corporations writing checks to make charges disappear.

Settlements have another downside: they weaken prosecutorial skills. Over time, prosecutorial aversion turns into lost knowledge. Settlement culture breeds investigative laziness and erodes trial skills.

Businesses now have privileges not seen since the Gilded Age. Executives make more money than ever. Corporate profits are at record highs. The courts are expanding corporate rights, as companies exert great political power and dominate our policy discourse. But the most valuable perquisite corporate officers possess is the ability to commit crimes with impunity. Such injustice threatens American democracy.

Today the justice system is broken.

The Justice Department succumbed to pressures, avoided the biggest cases. It became fearful of losing and lost sight of its fundamental mission to make this country a just place.

The lack of technology made the DOJ far less effective and productive. The DOJ was woefully behind private industry. In 2003, the DOJ had old computers, no blackberries, no document management system, and no way even to email the FBI agents assigned to the investigation. With this pathetic setup, they were taking on the infernally complex company Enron in the most important corporate fraud case in memory, against a legion of defense lawyers from the best firms in the world.

Speculation dominated the company’s culture and contributed an outsized portion of its profits. Once, after a trader had lost close to a half billion in one day, Skilling came down to the trading floor and exhorted the traders to “man up.” Get back out there and make more trades. Win it back.

Instead of having Enron disclose trading profits, Delainey and his executives hid them. They stashed the millions of dollars of earnings, in what prosecutors figured out was actually a “cookie jar,” that set aside profits for a possible legal settlement, was a lie. Poring over the company’s intentionally complicated and messy financial statements one more time, they’d noticed that a year after creating the reserve, Enron had lost millions in another division and dipped into that money—reserved for legal costs—to cover the losses and make it look like it had made money that quarter. That accounting hocus-pocus was illegal.

Enron executive Delainey could explain that little scam, but that’s not why they needed to flip him. Complex white-collar investigations required finding “rabbis” to guide you through the transactions.

They were conducting an old-fashioned investigation. They needed someone on the inside. If they could flip Delainey, they could take the prosecution all the way to the top. They could begin to build a case that Jeff Skilling had lied to investors and the public.

Most white-collar criminals are “individuals who find themselves involved in schemes that are initially small in scale, but over which they quickly lose control.

Few corporate white-collar fraudsters—not egregious Ponzi schemers or boiler room operators but perpetrators at large, respectable companies—start out thinking they will commit a crime.

They tell themselves, “I’ll just do it this quarter so we don’t miss the number, and then I’ll stop it and undo what I’ve done.” They don’t think of themselves as crooks. It’s just a short-term fix. Then they use the device again and again until they have no choice but to keep up the charade. They start rationalizing what they’re doing. It may be aggressive, but it’s not wrong. It’s not theft. The bad guys aren’t lying just to prosecutors. They are lying to their shareholders, their colleagues, and their families.

The prosecutor’s job is to crack through that self-justification and self-delusion.

When Enron filed for bankruptcy in December 2001, the implosion devastated a major US city, Houston, both economically and psychologically.

Ken Lay, Enron’s founder, was a longtime Bush family friend and major Republican donor.

Over the next few years, new companies reported accounting problems with alarming regularity: Tyco, Adelphia, HealthSouth, WorldCom.

Enron’s significance would recede, however, and the lessons it holds for white-collar enforcement would be forgotten. Despite Enron’s political might, the US government aggressively investigated the fraud at the energy trading company and prosecuted dozens of individuals, including the top officers of the company. Lay, Skilling, and Andrew Fastow, the chief financial officer, were all found guilty. Skilling and Fastow went to prison; Lay would have gone, too, but he died of a massive heart attack in 2006,

In all, the government charged thirty-two people associated with the Enron frauds, including Wall Street bankers who’d facilitated the deceptions.

The crimes were so egregious that the prosecutions were thought to have been easy. But that’s not at all true. What persecutors on the Enron Task Force did was not simple and never inevitable. If the task force hadn’t had resources, time, intelligence, and patience, Lay and Skilling may not have been prosecuted at all or could have easily been acquitted. Lay and others were hard to prosecute because they never or rarely used.  So the government lacked direct, incriminatory evidence of their guilt.

Despite their success, the Justice Department took the wrong lesson from Enron. The defense bar and Justice Department officials came to view the Enron prosecutors as reckless and abusive rather than sufficiently aggressive to meet the prosecutorial challenge. Today it’s an open question whether the Justice Department would be capable of taking on Enron the same way the task force did.

White-collar cases could languish for years, a poor way of conducting any investigation. The evidence trail grows cold, memories fade, and defense lawyers have time to formulate their client’s stories and tactics. Prosecutors needed to maintain momentum. Thompson and Chertoff understood that with the Enron debacle, the public would be bothered with slow justice. That there might be no justice—no prosecutions at all—never even occurred to anyone.

The Enron defense would point out that lawyers and accountants blessed the company’s actions. Indeed, that was true. Prosecutors needed to move cautiously. They had to sift through the complexities to find the potential crimes. However, the public and the press did not understand or sympathize. The press assailed the government for moving too slowly and letting the perpetrators walk.

 

 

Posted in Corruption, Mortgages, No Jail for Bankers & Wall St execs | Tagged , , | 1 Comment

Why is nearly all solar power built where subsidies are the highest?

If solar net energy return is as high as some solar advocates claim, why does solar need any subsidies? And not just U.S. subsidies, it’s subsidies on top of subsidies when you add in that we’re buying Chinese government subsidized solar panels and equipment.

States with only federal incentives produce the least solar power. Those that offer state and local incentives have the most. California is the King Kong of solar power due to its 49 incentives at the state, city, county, and utility levels ( http://www.dsireusa.org/). Subsidies are why California produces 60% of all U.S. solar power. High levels of subsidies are perhaps why Arizona has 14% of solar power, Nevada 7%, North Carolina 5.5%, New Jersey and New Mexico 2.5%, Massachusetts 1.8%, and Texas 1.6%. Together, these 8 states provide 94% of all solar power.

Of course, the southwestern states are by far the best places to put solar, since it is so damn seasonal as you can see in my post about Concentrated Solar Power (which applies to plain old solar power as well) here.

Federal, state, and local financial incentives can be rebates, corporate depreciation, tax credits, and tax exemptions, feed-in tariffs, grants, green building incentives, loans, net metering, PACE financing, personal tax credits and exemptions, and more.  City level subsidies can be substantial. San Francisco has incentives of up to $10,500.

On top of that, solar (and wind) don’t pay anything at all for transmission or the natural gas plants essential to balancing their intermittent power. Sure, hydropower is dispatchable too, but it is seasonally limited and spoken for by cities, agriculture, and river ecosystems most of the year. Pumped hydro storage, compressed air energy storage, and utility-scale batteries are only able to store 1-2% of power generation.

When there is another financial crash, it is highly unlikely that these subsidies will be maintained.

In the 11 states with the most potential solar power (21 to 35 degrees latitude), Georgia, Louisiana, Mississippi, Alabama, South Carolina, and Arkansas, produce only half a percent of U.S. solar power.  These states have few state level incentives and five of them have no Renewable Portfolio Standard (RPS).

But States at these latitudes that have more financial incentives produce 20% of solar power (Hawaii, Florida, Texas, Arizona, and New Mexico), and four of them have Renewable Portfolio Standards.

The entire United States is north of optimal solar power, but even so, on the whole the states with the most southerly latitudes (36 or less), where solar is most profitable, produced 68% of solar power.  The 15 states with 13 incentives or more produced 88% of the power, and the 11 states with an RPS that began before 2003 produce 75% of the power.  Of course, California skews everything with the lion’s share of production.

Conversely, the 14 states above 42 degrees latitude produced just three-tenths  of one percent of all solar power.  And the 36 states with few fewest incentives, those with 12 or less, produced just 12% of solar power.

Although the number of state subsidies is a rough indicator of how profitable it is to install solar, just one large incentive can be enough.  For example, until 2016 North Carolina had one of the highest state renewable tax credits, 35%, a big reason why North Carolina now generates 5.5% of U.S. solar power.

Texas ought to have more solar power than it does, since it has 20% of the potential solar power in the U.S., but developers prefer wind power because it has lower front-end costs and is therefore less risky.  According to Warren Buffett “we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit” (Pfotenhauer 2014).

Texas also doesn’t have net metering, which allows solar power to be sold back to the grid, which 43 other states have.  And electricity is already dirt-cheap, making it hard for any kind of power plant to make profits, especially solar with its high up-front costs.

But it is questionable how much more solar power California will build.  California appears to have hit the solar wall at just 7.7% in-state solar generation, yet after fossil fuels are gone, solar and wind will need to provide 80 to 90% of electricity generation.  Which can’t be done without massive energy storage. Which is 99% provided by natural gas, a finite fossil fuel like oil and coal.

The California Enegy Commission is also concerned about being able to reach the RPS goal of 33%, and doesn’t see how it a 50% goal can be reached with today’s technology.  Already an enormous power ramp rate that wasn’t expected until 2020 has occurred because solar power is mainly generated at noon, but electricity is most needed in the late afternoon, requiring vast amounts of natural gas power to ramp up to meet demand (Meier 2010, CEC 2016).

In 2016, Stanford scientists worried that California could hit the solar wall (Benson 2016).

In 2017, California did hit the solar wall, and this is rendering natural gas plants  unprofitable, plants that cost $2.5 to 5 billion and were able to borrow money because the banks believed they would be generating power much of the time.

Nothing but natural gas can balance solar and wind.  Energy storage batteries can’t be scaled up (only enough material exists on earth to build sodium sulfur batteries), there are few places to put dams for pumped hydro, even fewer places for compressed air underground storage, and hydrogen is the most ridiculous of all the possible ideas for providing energy.

 

APPENDIX A – Some details

The 8 states below produced 94% of all solar power, and tended to have one or more of these traits: latitude 36 or less (5), having an RPS (all), having an RPS that began before 2005 (5), and more financial incentives  than average (6).

  • # state      % of                            Average     Year RPS
  • Subsidies  power   State                 Latitude     Began
  • 64           60         California             36          2002
  • 16           14         Arizona               34          2006
  •   8             7         Nevada               38          1997
  • 13             6         North Carolina     36          2007
  •   9             3         New Jersey          40          1999
  • 30             2         Texas                 31         1999
  • 16             2         New Mexico         35         2002
  • 21             2         Massachusetts    42          1997

ALASKA Despite Alaska’s high latitude, solar energy is playing a role in off-grid applications, especially in remote locations. Solar thermal technologies, primarily for hot water and building heat, and solar photovoltaic panels are all being used to tap solar energy when it is available, reducing the need for other fuels

In 2014, California became the first state in the nation to get more than 5% of its utility-scale electricity generation from its solar resource. In 2015, utility-scale solar photovoltaic (PV) and solar thermal resources supplied 7.5% of the state’s net generation. California has considerable solar potential, especially in the state’s southeastern deserts. Several of the world’s largest solar thermal plants are located in California’s Mojave Desert. On a smaller scale, the California Solar Initiative encourages Californians to install solar power systems on the rooftops of their homes and businesses. When distributed (customer-sited, small-scale) generation is included, about one-tenth of California’s total net generation is provided by solar power.89 Currently, California has about 14,000 megawatts of installed solar power generating capacity.90

MONTANA had 4.5 megawatts of installed solar generating capacity by the end of 2015, but none of it was at electric utility-scale solar facilities.

WYOMING Although the state has good solar resources no utility-scale solar generation has been installed, in part because of Wyoming’s relatively low electricity rates. A small amount of distributed (customer-sited, small-scale) solar photovoltaic capacity has been installed around the state.123,124 The state does not have a renewable portfolio standard or other requirement for renewable energy

References

Benson, S., Majumdar, A. July 12, 2016. On the path to deep decarbonization: Avoiding the solar wall. also see  https://energyskeptic.com/2016/california-has-hit-the-solar-wall/

CEC. December 2016. Tracking resource flexibility. California Energy Commission.

DTF. June 2003. Diesel-Powered Machines and Equipment: Essential Uses, Economic Importance and Environmental Performance. Diesel Technology Forum.

Friedemann, Alice. 2015. When trucks stop running: energy and the future of transportation. Springer.

Heinberg, Richard and Fridley, David. 2016. Our Renewable Future: Laying the Path for One Hundred Percent Clean Energy. Island Press.

Meier, Alexandra von. (California Institute for Energy and Environment). 2010. Challenges to the Integration of Renewable Resources at High System Penetration. California Energy Commission. Publication number: CEC-500-2014-042.

NC. 2017. NC clean energy technology center database of incentives for renewables and efficiency http://www.dsireusa.org/. Also see https://solarpowerrocks.com/2017-state-solar-power-rankings/and https://energy.gov/savings

Pfotenhauer, N. May 12, 2014. Big wind’s bogus subsidies. Giving tax credits to the wind energy industry is a waste of time and money. U.S. News and world report.

Smil, Vaclav. 2013. Prime Movers of Globalization. The History and Impact of Diesel Engines and Gas Turbines. MIT press.

Posted in Concentrated Solar Power, Photovoltaic Solar, Solar EROI, U.S. Congress Energy Policy | Tagged , , , , , , | 6 Comments

Minerals & Energy from Ugo Bardi’s “Extracted”

Preface. This is a small section of Ugo Bardi’s excellent book “Extracted”.

His most important observation is that:

“The limits to mineral extraction are not limits of quantity; they are limits of energy. Extracting minerals takes energy, and the more dispersed the minerals are, the more energy is needed. Today, humankind doesn’t produce sufficient amounts of energy to mine sources other than conventional ores, and probably never will.

But like all minerals, long before they “run out”, if oil peaks, then game over, fossil fuel resources are necessary for the extraction of almost everything else, and the easy high-grade ores have been mined, leaving crummy ore and expensive declining fossils left to extract it.”

Bardi also explains why we can’t extract copper, uranium, or any other metal from the ocean.

Bardi, Ugo. 2014. Extracted: How the Quest for Mineral Wealth Is Plundering the Planet. Chelsea Green Publishing.

The average crustal abundance of elements such as copper, zinc, lead, and others is below 0.01 percent in weight (100 parts per million). Some very rare elements, such as gold, platinum, and rhodium, exist in the crust as a few parts per billion or even less. However, most rare elements form specific chemical compounds that can be found at relatively high concentrations, called deposits, in certain regions. As we know, some of those deposits that are concentrated enough that we can actually extract minerals from them are called ores.

Mining ores is a multistage process. The first is the extraction phase, in which materials are extracted from the ground. Then follows the beneficiation stage, when the useful minerals are separated from the waste (also known as gangue). Further processing stages normally follow; for instance, the production of metals requires a smelting stage and a refining one. All these stages require energy. Table 1 lists the specific energy needed for the production of some common metals, together with the total energy requirement for the present world production.

energy and mining ugo bardi

 

Table 1. Energy required for production of some common metals.

From this table, we can see that the world’s production of steel alone requires 24 exajoules, equivalent to about 5% of the world’s total primary energy production (about 450 exajoules).  Also note that, today, we extract copper from ores that contain it in concentrations of 0.5 to 1 percent. The total energy involved is 50 megajoules per kilogram. Using this value, we find that we need about 0.7 exajoules for the world’s copper production. This is about 0.2 percent of the world’s total energy production.

Taken together, the data of the table indicate that the total energy used by the mining and metal-producing industry might be close to 10% of the total world energy production—an estimate consistent with other projections.

As we run out of high-grade ores, we have to move to lower-grade ores. 

In general, the lower the ore grade, the more energy is needed for extraction. For example, if an ore has a mineral concentration that is 10 times lower than another, it will take 10 times more energy to extract that mineral from the ore. This is an approximation, especially when applied to the whole production process that includes smelting and refining. But we can take it as a reasonable “first order” approximation. We saw that we are already committing about 10% of the world’s primary energy to the production of minerals. This amount can only increase as we access lower-grade resources, even if we are aiming at just maintaining the present production levels. Therefore, if we want to maintain the current fraction of energy allocated to the mining industry, we must increase the world’s total energy production in proportion. That has been possible, so far, by increasing the production of fossil fuels, but it is becoming more and more difficult. The problem of dwindling ore grades occurs also with fossil fuels; energy is becoming more and more energy-expensive to produce. Nevertheless, the extra energy needed to access low-grade ores must come from somewhere, and at present it is being drawn from other sectors of the economy. That can’t be painless, and the pain appears in the present trend of rising prices for all mineral commodities.

Copper is present at very small concentrations, about 25 parts per million, in the upper crust. To produce 1 kilogram of copper from the undifferentiated crust, we would need to process 40 tons of rock.

The average American home consumes about 9,000 kilowatt-hours per year of electric energy, or 32,400 MJ.

Antarctica is the only major continent still unexplored for mineral resources, and there are most likely ores there. But at present finding or extracting anything that exists under kilometers of ice is an unthinkable endeavor.

Underwater mining requires complex and expensive technologies. The high costs involved may be justified only in the case of very valuable minerals, such as offshore diamond mines. That is done, for instance, off the coast of Namibia. 21 In some cases it is possible to mine undersea deposits as an extension of conventional mines, as is done in Japan for some coal mines. 22 It is often possible to extract oil and gas from the continental shelf because the process of offshore drilling can be completely automated and is not much different than it is on land—except for the need for a floating platform for hosting the drilling equipment. Of course, this kind of drilling carries risks that are not seen on land, as when the Deepwater Horizon drilling platform operating in the Gulf of Mexico exploded in 2010, releasing huge amounts of oil into the ocean ecosystem.

In general, sea floor deposits are too dispersed and at concentrations too low to be commercially interesting, even without considering the energy and monetary cost of mining at such great depths.

The problems with extracting minerals from seawater are twofold: the limited amounts available and the energy requirement. Calculations of these parameters are not encouraging.  The oceans are vast, but rare metals are dissolved in them in extremely tiny amounts. In the case of copper, for instance, there is about 1 billion tons of it in the form of copper ions dissolved in the whole mass of seawater on the Earth. That may seem to be a large amount, but consider that we now produce about 15 million tons of copper every year. Even if we were able to filter the whole mass of all the oceans—an unlikely prospect (also very bad from the viewpoint of fish, whales, and all other sea creatures)—we would run out of oceanic copper in little more than 60 years.

Extracting ions dissolved in water doesn’t require the energy-expensive process of rock breaking, lifting, and crushing of conventional mining. However, the concentrations of rare metal ions in seawater are enormously smaller than they are in mineral ores. So extracting a specific ion from seawater requires filtering enormously large amounts of water. That is not just a practical problem; it takes energy to pump water through a filtering membrane or, alternatively, for all the operations needed to transport the membrane to sea, leaving sea currents to move water in and out, and then to recover it.

Uranium extraction from seawater is still discussed as a future possibility. However, it is possible to calculate that the energy needed to extract and process uranium from seawater would be about the same as the energy that could be obtained by the same uranium using the current nuclear technology.  That, of course, would make extraction from seawater useless.

Lithium recycling is almost non-existent – less than 1% globally partly because it’s cheaper to mining it than to recycle it.

Mining the solar system.  Even if it turns out that asteroids and other planets have minerals we want, “the energy cost needed to reach them, mine ores, and then bring back the minded materials to earth is truly out of this world.

Nickel and zinc have limited exploitable deposits, so the problem of depletion cannot be ignored.

More than 12,000,000 tons of zinc are mined a year, the 6th most used metal. The average ore grade decreased from 7 to 5.5% between just 2000 and 2012.  The “official” current reserves represent 20 years of production.

Over 1,800,000 tons of nickel are mined a year, putting it in 10th place. Nickel reserves-to-production ration yields estimate 45 years of supply at current production rates.

Dissipation of minerals makes them unavailable for recycling. For example, zinc oxide in toothpaste won’t be recycled at a water treatment plant or reclaimed when used as a white pigment or additive in plastics or glass. When used in car tires, infinitesimal amounts are left on the pavement, and the rest is lost in landfills or ashes when incinerated.

After collapse, the remaining population will have plenty of metals though.  And once we’ve switched from cars to bicycles and horses, we’ll have little need for most of the high-tech ways we use many metals today.

Depletion is unavoidable

Perhaps this is why we have low oil prices now]: Jevons and Hotelling emphasized that over a certain limit, rising prices cause a reduction in demand, and that eventually stops rising production.  Industry won’t extract resources so expensive they’re impossible to sell.  Consequently, there’s a limit to the low-grade resources the industry can exploit. Economists assume that technology will always come to the rescue, lower costs of extraction and restoring both demand and industry profits. But this is a leap of faith: technology has monetary and energy costs so there are limits to what it can do.

And one thing is for sure: no technology can extract minerals that are not there.

The metaphor of Achilles’ heel is often used when a large and apparently solid structure fails because of a critical defect. Petroleum could be the Achilles’ heel of modern society. It could be argued that phosphorus is even more essential than oil.

Optimism about the depletion problem comes from a basic mistake – that of considering the amounts of minerals available and not the energy cost of recovering them.

 

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House hearing on Venezuela’s collapse March 2017

“The economy of Venezuela is largely based on the petroleum sector and manufacturing. Revenue from petroleum exports accounts for more than 50% of the country’s GDP and roughly 95% of total exports” (wiki).

Preface. Venezuela supposedly has 18.2% of the world’s oil reserves, and they are near the U.S., so no wonder Congress pays attention to what’s going on there. Years ago we got 10% of our oil there, and with world peak oil production peaking in 2018, and our fracked shale oil in decline, Venezuela will only grow more in importance. But I wouldn’t get excited about their oil, it is very heavy, very expensive, very difficult and low quality to get and refine, so it’s energy return on invested is low.

This is a summary of the 2017 House hearing “Venezuela’s tragic meltdown’. According to representative McCarthy, collapse in Venezuela has already happened: “By most standards, Venezuela has collapsed. At this point, it is about preventing open civil strife in the country”.

Like North Korea, Venezuela has 30 million potential refugees.  Already one million have moved to Colombia. Europe is worried about the 800,000 to 1 million Venezuelans with European Union passports arriving.

Oil decline is why North Korea, Syria, Yemen, Iraq, Egypt, Nigeria and other countries are failing, plus climate change.  Until oil and consequently oil revenues decline, Middle Eastern and other nations could buy their way out of a lack of food and water and other goods by being able to afford to import them.

Related Posts

Alice Friedemann  www.energyskeptic.com  Author of Life After Fossil Fuels: A Reality Check on Alternative Energy; When Trucks Stop Running: Energy and the Future of Transportation”, Barriers to Making Algal Biofuels, & “Crunch! Whole Grain Artisan Chips and Crackers”.  Women in ecology  Podcasts: WGBH, Jore, Planet: Critical, Crazy Town, Collapse Chronicles, Derrick Jensen, Practical Prepping, Kunstler 253 &278, Peak Prosperity,  Index of best energyskeptic posts

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House 115-13. 2017-3-28. Venezuela’s tragic meltdown. U.S. House of Representatives.

What will happen if there’s a collapse?

Steve Hanke, Institute for applied economics, Johns Hopkins University

In a collapse scenario, neighbor Colombia would experience the most severe direct repercussions. This is of great concern to US interests in South America. While Colombia has made important strides in strengthening state institutions and expanding sovereignty throughout the countryside, it is still in a very fragile place.

Globally, a collapse in Venezuela would likely produce three sets of disruptive effects: financial panic amid an increased chance of debt defaults, oil market volatility from the loss of Venezuelan oil exports, and a deepening of already complex security challenges regarding transnational crime.  A collapse would significantly heighten concern about a debt default. With Chinese and Russian state enterprises extending critical loans to Venezuela, both these governments have financial leverage. We do not know the fuII details of their bilateral financial arrangements. But it seems plausible to assume that Chinese and Russian government-linked companies could make claims on Venezuela’s oil assets in the context of a default. Such claims could also include U.S.-based Citgo.

Commercially, a collapse would roil international oil markets and create challenges tor importers of Venezuela’s oil. A disruption of Venezuelan oil exports to the United States would have a substantial commercial impact, in particular along U.S. Gulf Coast.  From 2000 to 2016, Venezuelan oil exports to the United States declined roughly 50% — from1.54 million barrels a day to 796,000barrels a day, according to the United States Energy Information Agency. Venezuelan oil now makes up 9% of total US. imports.

For global security, a collapse would provide an important opportunity window for the numerous criminal actors operating in-country. Narco-trafficking interests have penetrated the highest levels of the government and military, police corruption severely undermines the capacity to tight organized crime and reduce the astonishing murder rate of 70 per 100,000, and security forces are seriously hampered in their effort to safeguard borders because informal economic mafias exercise de facto control. In a situation of civil strife, the various criminal actors would likely expand their influences over illicit economies and state institutions.

The United States should continue contingency planning efforts for two possibilities: debt default and a migration crisis.

Collapse also means less oil for the United States. Venezuela provides 9% of our oil today.

Steve Hanke, Institute for applied economics, Johns Hopkins University

Venezuela has the largest proven oil reserves in the world, and not surprisingly produces one major product, oil. Oil production is carried out by a state-owned oil company, Petroleos de Venezuela, S.A. (PDVSA). PDVSA is so poorly ru1 and its proven oil reserves arc exploited so slowly as to render the value of its reserves worthless (Hanke, 2017).

Despite sitting on the world’s largest oil reserves, Venezuela’s oil production has fallen below 2 million barrels per day (bpd). That is down from 3.5 million bpd when Chavez took over the country. According to PDVSA’s 2015 audited financials, Venezuela uses 580,000 bpd domestically for fuel and power plants. Most of that is sold at less than a penny a gallon– at a total loss -leaving just 1.4 million bpd for export.

Of that remaining exportable 1.4 million bpd, 579,000 bpd go to China. The problem being that Venezuela receives no cash for those exports. China has loaned Venezuela over $60 billion dollars (65% of all its investment in Latin America) and Venezuela has already spent all that money and repays that loan by sending crude to Beijing.

With 580,000 bpd being burned domestically at a loss and 579,000 bpd going to China for free to repay loans, Venezuela is left with just 800,000 bpd to export for hard cash. The bulk of that goes to the USA, where according to the Energy Information Agency, Venezuela shipped 719,000 bpd to the U.S. in December, making us their largest customer- and the largest consistently paying customer. To keep it simple, rounding up to 1 million bpd for cash sale at Venezuela’s average price so far in 2017 of $45 a barrel (Venezuela’s mix of heavy oil trades at $10 below Brent and WTT), Venezuela is realizing just $45 million per day. $45 million per day in a country of 31 million is less than $1.50 per person.  And that is before the actual costs of producing the 2 million bpd which is conservatively $10 a barrel).

Mr Duncan.  We are at a critical point in Venezuela’s history. Severe widespread shortages in food, electricity, medicine, and the basic goods in what was once the richest country in Latin America have led to starvation, the highest infant mortality rate in the world, and horrific conditions in the hospitals. Today, Venezuela is on the edge of a complete meltdown. The country has the highest inflation rate in the world, a falling GDP, its oil company PDVS, is not generating enough revenue, and the Venezuelan currency is worthless. Gross economic mismanagement, widespread corruption throughout the government, and an erosion of democracy, rule of law, and human rights in the country have led Venezuela to its sad state today. Americans should take note, Venezuela is a case study for the failures of socialism [my comment: and oil decline].

Venezuela has the largest oil and second-largest gold reserves in the world. But, incredibly, under President Maduro’s tenure—and dating back to President Chavez’s tenure—the country has become practically a failed state. Last year, the economy shrank by almost 17%. This year, the International Monetary Fund estimates that inflation will in (1) crease to over 1,600%. The poverty rate is the highest in four decades and the homicide rate is at a 35-year high.

Those who can afford to leave are fleeing in droves to Colombia, and Brazil, seeking food and medicine. In the U.S. Venezuelans make up the largest percentage of asylum requests to the United States, with those numbers growing by 150% since 2015, according to the United States Department of Homeland Security. If the crisis in Venezuela continues, we could all have a situation on our hands where we are faced with massive refugee flows and public health threats from rising numbers of malaria and diphtheria cases in Venezuela, and those do not respect borders.

Venezuela’s PDVSA continues to creep along, but corruption and low oil prices have led to slower output. This situation has the potential to greatly impact gas prices here at home, as the United States is the third-largest importer of Venezuelan oil.

The recent news that PDVSA received a $1.5 billion loan in exchange for giving Russia’s state-owned oil company Rosneft 49.1% of its shares in CITGO is problematic for U.S. interests. Should Venezuela default on its debt obligation to Rosneft, the Russians would become the 2nd-largest foreign owner of U.S. refining capacity and thereby take control of a critical U.S. energy infrastructure, including three U.S. refineries and a network of pipelines.

Maduro and his cronies continue to get richer as they traffic money and drugs, while doing nothing to help billions of suffering people. Instead of focusing on the economy, Maduro is staging mock military exercises and stoking fears by spreading propaganda of a U.S. led invasion. Press reports show that of the 800,000 businesses that operated under Chavez, nearly 600,000 have shut down.

Maduro’s tactics are making it next to impossible to survive. With the recent sanctions of Vice President Tareck El Aissami under the Kingpin Act, it has become clear that Venezuela’s Government is acting as a narco-state and facilitating the shipment of narcotics throughout the region.

Steve Hanke, Institute for applied economics, Johns Hopkins University

The United States is keeping the lights on in Venezuela.

Allowing Venezuela to fall further into the hands of drug kingpins — with close relationships with Cuba, Iran, Hamas, Hezbollah, Russia and China — intent on doing us harm while sitting on top of the world’s largest oil reserves must not be an option.  Confirmation that coca cultivation spiked to 188,000 hectares -a level unseen in two decades -is very alarming.

The collapse of the public health system has been much worsened by the government’s incompetence and its criminal refusal to accept international humanitarian aid. The Maduro government talks about foreign invasion. They reject the foreign invasion of the Red Cross to assist this humanitarian crisis.

Venezuela experienced 28,000 killings and violent acts throughout the country in 2015. Caracas is the most violent city on Earth, with a murder rate of 120 per 100,000 inhabitants.

There are 1 million refugees in Colombia alone. Venezuela is a large country, 30 million people, bordering Brazil, Colombia, Guyana, and with a coast in the Caribbean.

In Europe, governments in Italy, Portugal, and Spain are casting a watchful eye over events. There are between 800,000 and 1 million Venezuelans with European Union passports. The overwhelming majority of these passport holders are from these three countries.

The bottom line is, well, what should the U.S. actually do in terms of policy? I would strongly advise no meddling, no direct meddling, forget the regime change kind of rhetoric that is so common in certain circles in Washington.

Mr. HANKE. If there is an increase in the price of a barrel of oil, in the short term PDVSA, the state-owned oil company, might actually move from a negative cash flow—they are spending more money than they are actually taking in right now. So they are running a negative cash flow. And they are exploiting their proven reserves at a very slow rate, and the rate is so slow, actually, that the reserves are actually worthless. And the reason they are doing that is that they haven’t been able to maintain their production capacity or expand it.

So if the price goes up my models show that oil prices will probably reach $70 a barrel by the end of the year, which is quite a bit above the $50 now.  That would be helpful, but it is just going to be a Band-Aid on PDVSA. It will help them. The bleeding will slow down, but they will keep bleeding. This is the worst run state-owned oil company in the world.

Mr. Putin and Mr. Sechin both wrote their graduate theses on using oil as a geopolitical tool. And some of the decisions that Rosneft has made have not been economically rewarding, but they have given them access and control of important markets all over the world, including our allies in Germany, making them the third-largest refiner now in Germany.

Mr. SIRES. We have been hearing about Venezuela being on the verge of collapse for the last few years.

Mr. HANKE. It has been going on for a long time. Even when I was President Caldera’s adviser, things were deteriorating massively, and that is why he brought me in to see if something could be done. It turned out he didn’t have the political power at the time to make some of the changes that would have probably corrected the situation.

 

 

 

Posted in Mass migrations, U.S. Congress Energy Dependence, Venezuela | Tagged , , , | 4 Comments

How long will the marriage of fracked oil and tar sands last?

[ Below is a post by Art Berman which I found interesting because I’m concerned about whether enough diesel can be made in the future to keep trucks running.  Light tight “fracked” oil is better at making plastics and gasoline than diesel fuel.  Tar sands need natural gas or light oil additions to thin the tarry asphalt enough to get through pipelines to refineries to be further refined with light “fracked” oil, hence the happy marriage of light oil and tar sands.

But can their marriage last?  TransCanada is betting oil prices will go much higher and faster than most forecasts anticipate and that the volumes will be there by the time that the Keystone pipeline is built. Canada would like to build the this pipeline to make sure any expansion of tar sands can deliver them for blending with tight oil. 

But Berman questions the longevity of the tight oil plays, since production from both the Bakken and Eagle Ford plays is declining and Permian tight oil production growth has slowed. 

U.S. ultra-light oil production is a central component of the global supply dilemma.  When tight oil output is high, some fraction can neither be refined nor exported and simply adds to inventories. 

An oil crunch surely is coming a few years from now, causing oil prices to rise dramatically. New E&P project investments are being deferred at a time when production from developed fields is accelerating. Improved production efficiency now will just further accelerate reserve depletion and make the decline rate steeper later. Meanwhile, new field discoveries are at the lowest level in decades and their average reserve size has gotten smaller.

The risk for the Keystone XL is that much higher prices will collapse the global economy before new projects can fill the pipeline and pay out the investment.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report ]

Art Berman. February 3, 2017. The Keystone XL Pipeline: A Risky Bet on Higher Oil Prices and Tight Oil. artberman.com  

The Keystone XL Pipeline (KXL) is a bet on much higher oil prices several years from now.  It will take at least $85 oil prices to develop the new oil sand projects needed to fill the pipeline.

It is also a bet that U.S. tight oil output will continue to grow and will need heavy oil to blend for refining. Both bets are risky.

A Bet On Higher Oil Prices

Keystone & Keystone XL Map 29 Jan 2017

Figure 1. Location map of Keystone XL and Base Keystone pipeline systems. Source: TransCanada and Labyrinth Consulting Services, Inc.

It was not until prices exceeded $70 per barrel in 2005 (December 2016 dollars) that oil sands expansion began to accelerate (Figure 2). Since then, production has almost doubled from 1.3 to 2.4 mmb/d and cumulative production has increased from 5.4 to 10 billion barrels.

Oil Sands Production Accelerated at $30 and $70 per Barrel

Figure 2. Oil Sands Production Nearly Doubled After Oil Prices Exceeded $70 Per Barrel. Source: Statistics Canada and Labyrinth Consulting Services, Inc.

By comparison, the Bakken and Eagle Ford tight oil plays have each produced 2.4 billion barrels. The Permian horizontal tight oil plays–Spraberry, Wolfcamp and Bone Spring–have produced less than 1 billion barrels.*

Oil Sands-Tight Oil Cumulative Comparison Table FEB 2017

Table 1. Comparison of Oil Sands and U.S. tight oil plays. Source: Statistics Canada, EIA, Drilling Info and Labyrinth Consulting Services, Inc.

In 2015, oil prices averaged only $43 per barrel. No new oil sand projects have been sanctioned since oil prices collapsed in 2014 although 3 pilot projects have been approved since prices moved into the $50 per barrel range. Approval is not the same as sanctioning and these 3 projects together would add only 35,000 b/d.

It seems unlikely that new greenfield projects will be sanctioned until oil prices move much higher (Canadian heavy oil (WCS) trades at a 25% discount to WTI). Assuming that prices stabilize in the $50 to $60 range, it is reasonable that pilots may evolve into brownfield expansion projects over the next year or two.

The Canadian Association of Petroleum Producers estimates that annual oil sand production will grow 128,000 b/d until 2021 and then, grow more slowly at 59,000 b/d. If all of that new oil were going to KXL, it would not reach capacity for about 10 years. But other pipelines are already approved for expansion and will probably get much of the oil before KXL is completed.

TransCanada’s bet, therefore, is that oil prices will move much higher and more quickly than most forecasts anticipate and that the volumes will be there by the time that the pipeline is built.

Light Oil and Heavy Oil

U.S. tight oil plays produce ultra-light oil. Almost all of it is too light for refinery specifications. That means that it must be blended with heavy oil in order to be refined and that is why there is demand for Canadian heavy oil.

The Keystone XL Pipeline is, therefore, a bet that tight oil plays will continue for several decades.

Similarly, Canadian viscous, heavy oil must be diluted with ultra-light oil to move through pipelines. Because of that, Canada is the biggest importer of U.S. light oil.

The U.S. imports almost 3 times more oil from Canada than from Saudi Arabia (Figure 3). Imports from Canada are roughly equal to the amount from Saudi Arabia, Venezuela, Mexico, Colombia and Iraq combined.

The U.S. Imports Almost 3 Times More Oil From Canada Than From Saudi Arabia

Figure 3. The U.S. imports almost 3 times more oil from Canada than from Saudi Arabia. Source: EIA and Labyrinth Consulting Services, Inc.

The average U.S. refinery is designed for 31° API gravity oil but 80% of domestic crude oil is more than 30° and 70% is more than 35° API gravity so it must be blended with heavier oil before it can be refined (Figure 4). The Keystone Pipeline carries oil that is approximately 22° API so the fit with lighter U.S. oil is perfect.

80% of U.S. Crude Oil > 30 API and 70% > 35 API

Figure 4. 80% of U.S. Crude Oil is greater than 30° API and 70% is greater than 35° API. Source: Drilling Info, EIA, Labyrinth Consulting Services, Inc. and Crude Oil Peak.

The increasing percentage of ultra-light oil (>40° API) after 2011 shown in Figure 4 is because of the growth of tight oil plays. More than 95% of tight oil is greater than 30° API and these plays now account for more than half (52%) of U.S. output.

It is, therefore, no surprise that 98% of the oil imported by the U.S. is heavy that is, less than 35° API gravity (Figure 5). The biggest sources of heavy oil other than Canada are Saudi Arabia, Venezuela and Mexico.

98% of U.S. Imports Less Than 35° API Gravity

Figure 5. 98% of U.S. Imports Less Than 35° API Gravity. Source: Drilling Info, Labyrinth Consulting Services, Inc. and Crude Oil Peak.

Production from Venezuela and Mexico is declining (Figure 6). Canada, Iraq and Saudi Arabia have strong production histories and are, therefore, more reliable long-term providers of heavy oil to the U.S. Canada has many advantages over other providers because of geographic proximity, supply security and price.

Mexico, Venezuela, Nigeria and Angola Have Declining Production

Figure 6. Mexico, Venezuela, Nigeria and Angola Have Declining Incremental Production. Source: EIA and Labyrinth Consulting Services, Inc.

Venezuela has enormous reserves of heavy oil and declining production is mostly because of political and social instability. This could change but it is more likely that Venezuela’s problems will continue. Mexico’s production decline is more systemic because the country has not made a significant new discovery since 1980.

A Bet on Tight Oil

So far, so good for the Keystone XL Pipeline but what about the longevity of the tight oil plays?

Production from the Bakken and Eagle Ford plays is in marked decline and Permian tight oil production growth has slowed (Figure 7). This is despite record high numbers of producing wells in all 3 plays.

Eagle Ford-Bakken-Permian PROD by API 1 FEB 2017

Figure 7. Bakken and Eagle Ford production are declining and Permian basin tight oil production growth has slowed. Source: Drilling Info, Labyrinth Consulting Services, Inc. and Crude Oil Peak.

The Bakken and Eagle Ford plays have probably peaked based on remaining core area locations, generally poorer performance from recently drilled wells compared to older wells, and current rig activity. Assuming that oil prices recover to the $70 range in coming years, production should increase as more marginal locations become economically viable–just not to peak levels reached in 2015.

The Permian basin, on the other hand, should continue to grow for several years for all of the reasons that the Bakken and Eagle Ford will not. There are substantial areas in the Permian core that have not been fully developed. Well performance continues to improve and the horizontal rig count has increased 70% since mid-August to 243.

Most forecasts are optimistic about tight oil output. The EIA Annual Energy Outlook 2017 anticipates that tight oil production will decline in 2017 but recover to 2015 peak levels by 2019 (Figure 8). WTI oil prices are expected to be $64 per barrel then and slowly increase to $80 by 2025. Tight oil production will rise to 6 mmb/d by 2026.

EIA Forecast- Tight Oil Will Not Recover to 2015 Levels Until 2019

Figure 8. EIA Forecast: Tight Oil Will Not Recover to 2015 Levels Until 2019 and Then Increase to 6 mmb/d by 2026. Source: EIA AEO 2017 and Labyrinth Consulting Services, Inc.

Although the forecast seems reasonable, it assumes that 2016 was the oil-price floor and that prices will continue to increase. It also suggests that prices will not reach the $70 threshold for new oil sand projects for 5 years. Other forecasts like HSBC are more aggressive and anticipate mid-$70 WTI prices as early as 2018.

The Big Long

If the last few years since the oil-price collapse have taught us anything it is that prices are unlikely to move in one direction. Nor are they likely to conform to mainstream analyst views.

Markets have been driven partly by an expectation that prices must inevitably return to levels of at least $70 to $80 per barrel sooner than later. This belief has endured despite a persistent global supply surplus and outsized inventories. The long-anticipated OPEC deus ex machina was lowered onto the stage in late 2016 and markets responded enthusiastically. Yet WTI prices have not crossed $55 per barrel so far.

It is difficult to find supply-demand fundamentals support even for the limited price rally that began with the OPEC announcement.  There may already be an expectation premium of $10-12 per barrel built into current prices. Yet markets don’t always follow fundamentals in the short term although they return to them eventually.

U.S. ultra-light oil production is a central component of the global supply dilemma. Permian basin companies are adding rigs like the boom days of 2011 to 2014 have already returned. When tight oil output is high, some fraction can neither be refined nor exported and simply adds to inventories. This occurs despite the best efforts of Canadian oil sand producers to bring as much heavy oil to the party as they can.

Oil consumption remains relatively weak in the U.S. This is disturbing against the backdrop of surging tight oil rig counts.

Consumption increased with very low oil prices in 2015 and early 2016 but not to the levels before the Financial Collapse of 2007-2008 (Figure 9). Most of the increase was from greater gasoline use and more refined products exports. Modestly increasing prices in 2016 dampened consumption suggesting that demand is highly price-sensitive.

Consumption Fell >2 mmb-d After 2005 But Recovered

Figure 9. Consumption fell >2 mmb/d after 2005 but recovered 1 mmb/d with increased refined product exports, lower oil prices & increased gasoline use. Source: EIA and Labyrinth Consulting Services, Inc.

This does not represent peak demand.  All credible forecast anticipate oil-demand growth over the next decade or so, albeit at a slower rate. Instead, it reflects an economy weakened by excessive debt and changes in Federal Reserve Bank monetary policy after mid-2014.

These rather gloomy observations may explain TransCanada’s motivation to complete the Keystone XL Pipeline now. I’m talking about a long bet on oil prices.

Future supply constraints will become greater the longer new E&P project investments are deferred. At the same time, the decline of production from developed fields will be more pronounced. Improved production efficiency will further accelerate reserve depletion. Meanwhile, new field discoveries are at the lowest level in decades and the average reserve size of those discoveries has gotten smaller.

Oil prices will increase dramatically at some time in the next several years. That should lead to the next oil boom and the Keystone XL Pipeline will be there to provide heavy oil to U.S. tight oil plays.

There is little doubt that a supply crunch lurks in the future. The risk for the Keystone XL is that much higher prices will collapse the global economy before new projects can fill the pipeline and pay out the investment.

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*EIA’s Drilling Productivity Report estimate of 4.8 billion barrels includes all conventional production in the counties in which the tight oil plays are located.

Matt Mushalik contributed to the research on light oil.

Posted in Oil & Gas Fracked, Tar Sands (Oil Sands) | Tagged , , , | 4 Comments