Spike in energy prices suggests that sharp changes are ahead
Posted on October 18, 2021, by Gail Tverberg
An analysis of what is going terribly wrong in the world economy
The energy price spike that is being experienced today is a warning that something is very, very wrong. As I see the situation, the trend toward complexity has gone too far; the economic system is starting to break down. Sharp changes appear to be ahead. The world economy is shifting into contraction mode, with more and more parts of the system failing.
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[1] If energy supplies are inexpensive and widely available, it is easy to build an economy.
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[2] Once energy supplies become constrained, energy prices tend to spike. In the early stages of these price spikes, adding complexity allows the economy to better tolerate higher energy costs.
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[3] There are limits to added complexity. In fact, complexity limits are what are likely to make the economic system fail.
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[4] An increasing amount of complexity has been added since 1981 to help compensate for rising oil and other energy prices.
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[5] Economists and analysts of many types put together models that give misleading results because they missed several important points.
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The models of economists are mostly wrong. The use of carbon pricing and intermittent renewables will simply disadvantage the countries adopting them.
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[6] At this point, ramping up fossil fuel production would be very difficult because of the long-term low prices for fossil fuels. Unfortunately, the economy cannot get along with only today’s small quantity of renewables.
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Most people don’t realize just how slowly renewables have been ramping up as a share of world energy supplies. For 2020, wind and solar together amounted to only 5% of world energy supplies and hydroelectric amounted to 7% of world energy supplies. The world economy cannot function on 12% (or perhaps 20%, if more items are included) of its current energy supply any more than a person’s body can function on 12% or 20% of its current calorie intake.
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[7] Every plant and animal and, in fact, every growing thing, needs to win the battle against intermittency.
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[8] Any modeling of the cost of energy needs to take into account the full system needed to “bridge the intermittency gap.”
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[9] Major changes for the worse seem to be ahead for the world economy.
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The recent spikes in prices are highly unlikely to produce the natural gas, coal and oil that is required. They are more likely to cause recession. Fossil fuel suppliers need high prices guaranteed for the long term. Even if such guarantees could be provided, it would still take several years to ramp up production to the level needed.
The general trend of the economy is likely to be in the direction of the Seneca Cliff (Figure 1). Everything won’t collapse all at once, but big “chunks” may start breaking away.
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Importers of fossil fuels seem likely to be especially affected by price spikes because exporters have the ability to cut back in the quantity available for export, if total supply is inadequate. Europe is one part of the world that is especially dependent on oil, natural gas and coal imports. [mais ainda Portugal!]
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The combined production of hydroelectric, wind and solar and biofuels (in Figure 9) amounts to only 19% of Europe’s total energy consumption (shown in Figure 8). There is no possible way that Europe can get along only with renewable energy, at any foreseeable time in the future.
European economists should have told European citizens, “There is no way you can get along using renewables alone for many, many years. Treat the countries that are exporting fossil fuels to you very well. Sign long term contracts with them. If they want to use a new pipeline, raise no objection. Your bargaining power is very low.” Instead, European economists talked about saving the planet from carbon dioxide. It is an interesting idea, but the sad truth is that if Europe takes itself out of the contest for energy imports, it mostly leaves more fossil fuels for exporters to sell to others.
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I could continue speculating on the changes ahead. The basic problem, as I see it, is that we have reached limits on oil, coal and natural gas extraction, pretty much simultaneously. The limits are really complexity limits. The renewables that we have today aren’t able to save us, regardless of what the models of Mark Jacobson and others might say.
In the next few years, I am afraid that we will find out how collapse actually proceeds in a very interconnected world economy.
https://ourfiniteworld.com/2021/10/18/spike-in-energy-prices-suggests-that-sharp-changes-are-ahead/
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