Gail Tverberg's Contributions

The International Energy Agency (IEA) provides unrealistically high oil forecasts in its new 2012 World Energy Outlook (WEO). It claims, among other things, that the United States will become the world’s largest oil producer by 2020, and will become a net oil exporter by 2030.

As I look at the situation, it seems to me that many of the crises around the world are connected to oil supply and the cost of this oil supply. If oil supply gets tighter, there is potential for these crises to get worse.

Without substitutes at a price that the economy can afford, economies will adapt to lower amounts of oil they can afford by worsening recession, debt defaults, and reduced international trade.

We keep hearing about the many benefits of natural gas–how burning it releases less CO2 than oil or coal, and how it burns with few impurities, so does not have the pollution problems of coal.

An economy such as the United States can cover up the problems caused by high oil prices with variety of financial techniques. In my view, high consumer confidence measures the success of those cover-ups, more than it measures the actual underlying situation.

We are running short of cheap energy, especially cheap oil. High priced oil (or high priced energy of any type) tends to slow down the economy, leading to economic contraction. Our financial system is not made for contraction. Ben Bernanke and others have used artificially low interest rates and Quantitative Easing to try to cover up our current problems, but this is not a long-term solution. At some point, the underlying problems will become evident, and some type of discontinuity will take place. The economic situation will change from one of growth to decline.

Energy plays an important role for each of us as humans, just as it does for other species in ecosystems. The most obvious use for energy is in the food that we eat. Some of the energy we use is embedded energy—that is energy from the past that has been used to make something that we use today.

The tie between energy supply, population, and the economy goes back to the hunter-gatherer period. Hunter-gatherers managed to multiply their population at least 4-fold, and perhaps by as much as 25-fold, by using energy techniques which allowed them to expand their territory from central Africa to virtually the whole world, including the Americas and Australia.

US nuclear production tends to be concentrated in the Eastern part of the US, so that nuclear amounts to 30% to 35% of electric production along the US East Coast. This would be very difficult to replace by generation from another source, other than possibly fossil fuels.

We talk about the possibility of reducing fossil fuel use by 80% by 2050 and ramping up renewables at the same time, to help prevent climate change. If we did this, what would such a change mean for GDP, based on historical Energy and GDP relationships back to 1820?

A few days ago, I showed the close relationship between growth in world oil consumption and growth in world GDP. In this post, I will extend that analysis by building a model that shows how much of an increase in world oil supply is need for a given increase in world GDP.

The usual assumption that economists, financial planners, and actuaries make is that future real GDP growth can be expected to be fairly similar to the average past growth rate for some historical time period.

Are lower oil prices good news? Not really, if it means the world is sinking into recession. We know from recent past experience and from common sense that higher oil prices are a drag oil importing economies, since if more $$$ are spent on the same amount of oil, there is less to spend on discretionary goods and services.

It seems to me that new IMF working paper model is a real step forward in looking at oil supply and the economy. The model, as it is today, points out a definite problem area (namely, the likelihood of oil high prices, if growth in oil production continues to be constrained below pre-2005 rates of increase).

If we read the financial pages, economic growth seems to be viewed as the “normal” situation to which economies inevitably return. But is it really? If we look back over the past 50 years, or even over the past 100 years, economic growth has predominated

Countries trade crude oil and oil products back and forth. When all of these transactions are netted out, is the US close to becoming a “net” oil exporter? With the recent increase in oil production (perhaps even exceeding that of Russia on a “barrels-per-day” basis), a person might think that US oil production problems are behind us.

U.S. demand for natural gas has been fairly flat for the last 10 years, regardless of price. Of the four major uses for natural gas ((1)residential heating, hot water, and cooking; (2)commercial heating, hot water, and cooking; (3) industrial demand; and (4) electricity), only electrical use has been growing.

The fact that things haven’t fallen apart so far doesn’t give the assurance that things never will fall apart. Individual countries behave very differently. While some countries may continue to grow using coal, other countries will flounder when hit by high oil and natural gas prices.

The world is presently sharing a limited supply of oil. When oil prices rise, oil production doesn’t rise very much, if at all.