Global financial system implosion begins

[elbows]

Since I mentioned Russian oil production being sustained as one of the reasons we havent ended up in the nasty overall decline phase yet, and have been able to argue between ourselves for a number of years instead, I should probably point out that some experts on Russian oil think it will be the 2nd half of this decade that production declines kick in there. So probably only a couple of years till we see that.

 

[junglevip]

The US dollar is expected to take a value nosedive in 2013 if China refuses to continue financing Washington’s spiraling debt, an economic analyst tells Press TV.

http://www.presstv.ir/detail/2013/01/03/281591/us-dollar-to-collapse-in-2013-analyst/

 

[littlebabyjesus]

the US dollar will collapse because China won’t finance it anymore

From jvp's link. Why won't it?

It is not in China's interest to fuck the US economy.

 

[free spirit]

You were provided with three independent sources of data, each counterfactual to your claim that the energy supply can still grow.

1. On EROEI, you were provided with a link to "Searching For a Miracle: Net Energy Limits & The Fate Of Industrial Society" (Heinberg 2009). Heinberg is an authoritive author in the field of energy analysis

Because this report is a layperson’s guide, we cannot address in any depth the technical process of calculating net energy.

This is the level of your response to a request for specific credible data to support your position?

A lay persons guide to the subject matter written by a writer / professional commentator with zero academic credentials in the field?

and you wonder why I struggle to take you or your position seriously?

And no, this is not just me playing the man not the ball, reading that article is a bit like reading through a fairly mediocre student essay on the subject - there is much I agree with in it, but it's littered with embarrassing errors that clearly indicate the authors limited understanding of the subject he's discussing.

For example, this shows a lack of understanding of the fact that with very minor tweaks, biogas mixed with mains gas (which is what's being discussed) would largely be used in ~60% thermally efficient CCGT generators, and even when burnt on its own can be used in slightly modified CCGT, it just isn't often at the moment due to the small size of the generators being used - but put it into the gas grid and there's no issue with that.

Burning biogas for heat and cooking offers 90 percent energy conversion efficiency, while using biogas to generate electricity is only 30 percent efficient.

He also seems to have plucked this gem from some time in the late 80s, as I can remember average module efficiencies being in the 12-13.5% region as far back as 1998, and the average now is more like 14.5-15%, and it'd have been pretty much impossibly to get a mono-crystalline panel at 10% efficiency in that entire period.

the typical efficiency of an installed commercial single-crystalline silicon solar panel is 10 percent,

Then there's this pretty much ludicrous claim about the potential fall in EROI of US coal that's basically unreferenced as the reference given is just 'Ibid'.

Moreover, the decline is continuing, with one estimate suggesting that by 2040 the EROEI for U.S. coal will be 0.5:1

There are dozens of these sorts of issues throughout that article, and tbh citing such poorly researched articles written by an author who clearly doesn't actually have much actual depth of knowledge in the field they're writing about really only serves to discredit you and your entire point of view on this in my eyes, I don't know about anyone else.

Are you not embarrassed to post up such crap in the place of credible data to support your position?

 

[free spirit]

Specifically, you are constructing a straw man. What has been said is that:

You can't make out that someone is making a strawman argument when you clearly stated the precise point I'm arguing against.

My point was, is, and shall remain that the global financial system is undergoing implosion, brought about by its critical dependence on an expanding energy supply which is now contracting, of which the dominant component - because of its density, fungibility, EROEI, transmutability, transportability, and unsubstitutability - is oil.

I actually thought we'd settled this days ago and you'd accepted that you were wrong to state that net energy actually is already declining, but then you took exception to me making this position clear and starting arguing the toss on it again.

You're simply wrong on this point, if you'll just accept that and stop repeating the same false claim then I'd happily move on from that point, as I actually tried to do a few days back.

 

[love detective]

From jvp's link. Why won't it?

It is not in China's interest to fuck the US economy.

that aside, china doesn't 'finance' it anyway, it owns about 7% of it (pretty much exactly the same as japan owns) and it's not even the single biggest holder of US state debt

 

[littlebabyjesus]

Yeah, but China.

Woooo

China.

Seems to me that people project all kinds of fears onto China, with little or no reason at all.

 

[Crispy]

Yeah, but China.

Woooo

China.

Seems to me that people project all kinds of fears onto China, with little or no reason at all.

It's big, there's loads of them, their language is unintelligible and they've got no democracy. WooooOOOOooooh! China!

 

[junglevip]

The Parable of the Ox

Tim Harford tells us what a 'guess the weight of the ox' competition tells us about a bloated and dysfunctional financial system. It features two noted economics writers: James Surowiecki of the New Yorker and John Kay of the Financial Times and a brand new composition from the New Radiophonic Workshop.

http://www.bbc.co.uk/programmes/b01phn0y

 

[Falcon]

The fact that available substitutes are of significantly lower EROEI merely compounds the problem - the actual role of EROEI is minor in my argument. I am required only to demonstrate that there are none of equivalent EROEI, and you have accepted that. The material components of my argument are (2) and (3) - the ones you have - understandably - avoided.

Compare with:

This is the level of your response to a request for specific credible data to support your position?

{Insert long EROI data attack which, despite paragraphs of verbiage founded on an ad hominem fallacy, fails to rebut the argument: that there are no substitutes of equivalent EROEI. Omit acknowledgement of, let alone response to, fundamentally counterfactual data on physical supply factors.}

Best we don't talk about crap authorship, Free Spirit.

this is my point. We don't know what point they become self sustaining at, so it's complete nonsense to talk about being 5 years away from the threshold of irreversible climate change, or needing to leave 80% of hydrocarbons in the ground as if these figures were in anyway accurate

Translation: "The models aren't completely accurate yet. So it's OK to act as if they were totally inaccurate, and to base our plans on doing more of the process we know is promoting a species extinction event that we have visible evidence has begun."

I think this is deranged.

In truth they are entirely political constructs…they have fuck all basis in the science of climate change

Translation: "To maintain the integrity of my argument, I am now forced to adopt the position of the most extreme climate change denier."


Free Spirit. You've established that you can't distinguish reliably between net and gross energy volume in simple discussions on the subject. You've advanced the central, neoclassical economic argument of a coalition of pro-growth special interests including big oil, aviation and motoring that the net supply of energy is rising. You've advanced the central argument of the climate change denial coalition that climate science guidance is politically motivated rather than a credible attempt to guide policy decisions based on quantification, in order to claim that the hydrocarbon energy supply should continue to expand to fund your projects. In further support, you've deployed a single graph of rising gross fuel production which has served to reinforce my argument about the rate at which we are eroding our marginal emissions sink capacity yet contributed nothing to your argument about net energy, while sustaining a prolonged exercise in misdirection around a straw man constructed from a minor element of my argument. You've deployed the energy coalition's argument about rising energy efficiency, which is an embarrassment to anyone with even a passing familiarity with the global demographic structural drivers of energy demand. You've persistently avoided compelling counterfactual evidence pertaining to the magnitude and pace of near-term trends in primary energy resource contraction. And you've advanced a number of propositions which are contaminated by your inability to distinguish reliably between our emissions input to the nonlinear climate system and the volume control on your radio, and therefore between a cliff and a slippery slope, and therefore to which we can attach no value.

The wheel appears to have flown off the unicycle of your argument, and I'm happy to move on too.

 

[Frank Merton]

It's big, there's loads of them, their language is unintelligible and they've got no democracy. WooooOOOOooooh! China!

-- It's big. Well, yes, but Russia is even bigger. I guess people fear Russia too.
-- There's loads of them. Well, yes, but there's also loads of Indians. More on this below.
-- Their language is unintelligible. Nonsense. The writing system takes years to lean, but the language is really fairly simple, without all the grammar that is required if you study German or Russian or Latin. If they would adopt a Western writing system (Roman or Cyrillic), that problem too would go away, but so many have spent so long studying the characters that they have a vested interest in keeping it. (There is also a long artistic tradition that might be lost).
-- They've got no democracy. This is an idea, being Vietnamese with a similar one-party government, that I take issue with. One-party systems, when one avoids the tendency they can have to go into dictatorship personality-cult mode, are in my opinion the best systems. These countries can be described as democratic -- the democracy is within the functioning of the party, but it is present, and one avoids the generally hypocritical illusion that people are choosing that Western states use for their legitimacy.

Now, about population. People are the most important resource a nation can have. All else being equal, the greater the population, the greater the nation. People who live in poverty and hunger, are illiterate and untrained, however, pull a nation down. One of the things that technology and science has been doing over the last century or so has been a leveling effect, allowing poor countries to improve their nutrition, health, and, most important of all, educational systems.

 

[Falcon]

This is the perfect example of bullshit attempts to pretend that some aspects of peak oil have already happened in a way that does no justice at all to the present situation.

I think the wider point it more clearly illustrates is the need to step back and make sure the broader trend is perceived. It is difficult to extract a meaningful signal from the year on year variations in OPEC output. But it is quite simple to extract the primary drivers and construct the trend (a point Free Spirit finds difficult to appreciate).

Saudi has about one fifth of what OPEC declare to be oil reserves (I choose my language carefully). It has a declared maximum production capacity of 15 million barrels a day and supplies around 10-11 million. It has a population of 25 million growing at 2% per annum (35 year doubling time). It has a domestic energy demand of 3.4 million barrels a day growing at 5% per annum (14 year doubling time) driven by its irreducible water desalination requirement.

On that basis, OPEC's second largest reserves holder ceases export permanently in 15 years. MoneySupermarket is currently offering 25 year mortgages for 4.2%. The disconnection ought to be disconcerting.

Saudi is the conventional hydrocarbon swing producer. When it can no longer provide the incremental barrel of demand, the system fails. That's the sort of data that the market responds to. It just doesn't currently believe that Saudi's export capacity is limited to 15 million barrels a day, and hasn't yet understood the significance of Saudi's decision to construct a fleet of nuclear reactors to safeguard drinking water supplies (Saudi understands its oil "reserves" figures perfectly, even if the market doesn't).

 

[Frank Merton]

We really have no idea how much oil the Saudis have, and they aren't going to tell us. This renders everything that I have read here about them as just speculation.

 

[Falcon]

We really have no idea how much oil the Saudis have, and they aren't going to tell us. This renders everything that I have read here about them as just speculation.

A statement which is wrong in several ways.

Firstly, "really have no idea" implies our estimate could be grossly wrong (I realise English may not be your first language, so I am not criticising). Statistical methods in the discipline of petroleum engineering (in which I am qualified) allow quite accurate estimates to be made from apparently sparse data, and those estimates are unlikely to be in error of sufficient margin to alter the conclusion. Hydrocarbon discovery data is an exercise in sampling. After withdrawing 50 balls of varying size from a sack containing an unknown number of balls of unknown size distribution, my estimate of the size distribution and therefore volume of the remaining balls is speculation. But the uncertainty bounding that speculation is very low.

Secondly, while we may not know how much they have, we do know how much they have produced, and by how much what we produce elsewhere is depleting and must therefore be replaced. One of the unintuitive outcomes of exponential demand growth and exponential supply contraction is that an estimate of the "time-to-exhaustion" of a reserve subject to exponential drawdown is grossly insensitive to the magnitude of the estimate of the reserve. An estimate of their cease of production is therefore insensitive to gross error in the estimate of their reserve.

Thirdly, there is a political, systematic error bias in estimates of their reserves such that the true figure is more likely to be lower than higher. Therefore an estimate based on their declared reserve is likely to be conservative i.e. the true figure worse. I presented the conservative figure.

 

[Frank Merton]

A statement which is wrong in several ways.

Firstly, "really have no idea" implies our estimate could be grossly wrong (I realise English may not be your first language, so I am not criticising). Statistical methods in the discipline of petroleum engineering allow quite accurate estimates to be made from apparently sparse data, and those estimates are unlikely to be in error of sufficient margin to alter the conclusion. Hydrocarbon discovery data is an exercise in sampling. After withdrawing 50 balls of varying size from a sack containing 150 balls of unknown size distribution, my estimate of the distribution size of the remaining balls is speculation. But the uncertainty bounding that speculation is very low.

It reminds me of the statistical methods the CIA use to employ to guesstimate true Russian and Chinese economic statistics. They were off by an order of magnitude. I think all the calculations create an illusion of precision.

Thirdly, there is a political, systematic error bias in estimates of their reserves such that the true figure is more likely to be lower than higher. Therefore an estimate based on their declared reserve is likely to be conservative i.e. the true figure worse. I presented the conservative figure.

I think the political considerations lead to the opposite conclusion. The Saudis have every reason in the world to let everyone think they have less than what they actually have.

 

[Falcon]

It reminds me of the statistical methods the CIA use to employ to guesstimate true Russian and Chinese economic statistics. They were off by an order of magnitude. I think all the calculations create an illusion of precision.

Sadly, in your reminiscing, you've failed to recall that economics is a social study pseudoscience and therefore grossly incompatible with statistical methods, whereas petroleum engineering is a physical science and therefore highly amenable to statistical methods.

I think the political considerations lead to the opposite conclusion. The Saudis have every reason in the world to let everyone think they have less than what they actually have.

When Saudi reserves run out, the US troops protecting which ever King replaces Abdullah withdraw and he loses power (and quite possibly his head). I think your political analysis is naive.

 

[Frank Merton]

When Saudi reserves run out, the US troops protecting which ever King replaces Abdullah withdraw and he loses power. I think your political analysis is naive.

And I think yours is; there are a few radicals but the Saudi throne is popular.

 

[ferrelhadley]

I think the political considerations lead to the opposite conclusion. The Saudis have every reason in the world to let everyone think they have less than what they actually have.

As wrong as you can be. The less secure Saudi is as a source, the more insentive there is to move to other suppliers and energy sources. China and America have huge coal reserves and CTL is a very well established technology, the huge drops in price for solar PV, the low cost of the best sited land wind generation, Canadian low API bitumen, new sources of high API oil in low (or near zero) permeability rock formations.... the list of high cost rivals to oil is long. It has long been the Saudi position of keeping the oil price stable but pricing out rivals. They have a long history of being swing producer to maintain price. However since about 05 they have been unable to do this.

There is already substantial political risk associated with gulf oil, the more geological risk the Saudis admit to the greater the balance of risks weighs against them. The siren call of energy independence in the US has already led to vast subsidies for idiocies like corn ethanol.

The lesson the Saudis took from the mid 80s oil crash is that if you allow prices to get too high, alternative sources (North Sea, Alaska North Slope) come into play and efficiency savings create structural drops in demand.

Failure of Saudi to be able to act as swing producer has brought into play alternative technologies like the Prius hybrid or using CNG from shale gasses for transport.

 

[Falcon]

And I think yours is; there are a few radicals but the Saudi throne is popular.

Again, factually untrue. "A few radicals" does not accurately describe Saudi's internal security threats, or adequately explain the magnitude of its domestic security force. See, for example "Saudi Internal Security: A Risk Assessment, Center for Strategic and International Studies, 2004" (ref).

The Saudi throne is popular to the extent that revenue from oil sales subsidises high and growing level of welfare payments, domestic energy and petrol subsidies - an incentive to overstate, not understate, the basis for sustaining and increasing those benefits - its oil reserves.

 

[Frank Merton]

Again, factually untrue. "A few radicals" does not accurately describe Saudi's internal security threats, or adequately explain the magnitude of its domestic security force. See, for example "Saudi Internal Security: A Risk Assessment, Center for Strategic and International Studies, 2004" (ref).

The Saudi throne is popular to the extent that revenue from oil sales subsidises high and growing level of welfare payments, domestic energy and petrol subsidies - an incentive to overstate, not understate, the basis for sustaining and increasing those benefits - its oil reserves.

The Saudi throne has deep religious roots that I doubt either of us fully comprehend. Just because you don't like it doesn't mean the locals don't.

 

[Falcon]

The Saudi throne has deep religious roots that I doubt either of us fully comprehend. Just because you don't like it doesn't mean the locals don't.

I was discussing their reserves position. My opinion of their throne is not relevant.

 

[Frank Merton]

I was discussing their reserves position. My opinion of their throne is not relevant.

Then why the argument? My position on their reserves is that I don't know and I don't think anyone other than a few Saudi officials knows, and all they have are estimates. All the rest is hot air based on questionable projections and a massive illusion of accuracy derived from the manipulation of those iffy numbers.

The collapse of the Saudi regime must happen someday, I suppose, or maybe it will evolve. We know the present king will die. All things end.

 

[Falcon]

Then why the argument? My position on their reserves is that I don't know and I don't think anyone other than a few Saudi officials knows, and all they have are estimates. All the rest is hot air based on questionable projections and a massive illusion of accuracy derived from the manipulation of those iffy numbers.

The collapse of the Saudi regime must happen someday, I suppose, or maybe it will evolve. We know the present king will die. All things end.

The argument is with your statement that the numbers are iffy, and that the magnitude of iffiness is significant in relation to demand. I am not interested in your argument about the charisma of the Saudi Royal Family.

You've stated your position, and your position is not consistent with petroleum engineering. Unless you've anything else to add, there is no argument.

 

[Frank Merton]

The argument is with your statement that the numbers are iffy, and that the magnitude of iffiness is significant in relation to demand. I am not interested in your argument about the charisma of the Saudi Royal Family.

Then why did you make an argument out of it?

 

[ferrelhadley]

My position on their reserves is that I don't know and I don't think anyone other than a few Saudi officials knows, and all they have are estimates. All the rest is hot air based on questionable projections and a massive illusion of accuracy derived from the manipulation of those iffy numbers.

I am now pretty convinced you have the square root of fuck all knowledge of the history of oil and Saudi oil especially.

Saudi has found very few substantial new fields over the past 30 years. Almost everything it has comes from fields that were being worked before Aramco was nationalised. There is a mountain of old 2D seismic and drilling work for those fields putting upper bounds on the oil in place. Having to report to the US SEC, they were bound by strict guidlines on the oil they could book as P95, a few years after Saudi nationalised Aramco they jacked up the reserves, suspiciously to what was seen as the P50 number. They have been, year on year, adding near exact like for like replacement since then.

We have a reasonable upper bound for Saudi oil in place. But they are not really adding to the total oil found, just increasing the estimate of what is recoverable, that is to be expected. You cant really expect the P95 figure from the late 70s to remain the same, its the obvious nature of a 95% likely reserve estimate.

They have been expanding their pumping capacity massively, projects like Haradh III and Manifa, this is to maintain or expand out put capacity. But it is not looking like they have anything remotely beyond a surge capacity of 12 mbd and at that will likely be a rate that damages fields. 10mbd seems to be the sustainable limits with what we know they have drilled.

But hey ho. Its a political forum on the internet, so wee bit of handwaving, some political bullshit and hey presto, everyones an expert.

 

[Falcon]

Compare

I think the political considerations lead to the opposite conclusion. The Saudis have every reason in the world to let everyone think they have less than what they actually have.

with

Then why did you make an argument out of it?

 

[Falcon]

Almost everything it has comes from fields that were being worked before Aramco was nationalised.

Actually, it is even more specific and tawdry than that. The basis for allocating sales revenue between OPEC cartel members is pro-rata on each member's (secret) claimed reserves. This establishes a direct incentive for each member to overstate reserves to increase income (in yet more flat contradiction of Frank Merton's view). They introduced the rule in 1981 and, by 1988, OPEC had added 300 billion barrels to its aggregate reserves in a quota race between its members to preserve income share. Global exploration had peaked twenty years earlier and these were not associated with any discovery or reserves mobilisation investment. We call them "paper barrels" in the industry - they only exist on finance ministers' balance sheets.

You can see the effect clearly in BP statistics on estimates of global reserves together with the effect of exact replacement you report. Of course, Kuwait had to downgrade when accounting hallucination collided with physical reality, an object lesson for all of us.

The numbers I use on these forums don't back these "reserves" out i.e. real outcomes will be worse. They represent about 10 years of overstated production at current consumption rates.

 

[Crispy]

Nonsense. .

I know. Sorry, should have added sarcasm smiley!

 

[Frank Merton]

The reason I think the Saudis understate reserves is simply that that way they can justify higher prices. The Saudis have always behaved in such a manner to keep prices at the maximum possible without hurting demand. They increase production when prices get higher than that -- indicating to me that they expect to be producing for a good long time -- they don't want to stimulate the appearance of alternatives.

 

[elbows]

The reason I think the Saudis understate reserves is simply that that way they can justify higher prices. The Saudis have always behaved in such a manner to keep prices at the maximum possible without hurting demand. They increase production when prices get higher than that -- indicating to me that they expect to be producing for a good long time -- they don't want to stimulate the appearance of alternatives.

Thats an oversimplification which has some contradictions and has been severely tested in the last 5+ years.

They seemed powerless to prevent the price rising to levels that damaged demand some years ago, and thats partly what forced the mainstream to pay attention. And the price they have 'allowed' oil to settle at based on that hypothesis is sufficiently high that alternatives have been stimulated. But this may not bother them that much since they know that there is no alternative that has quite the advantages and scaleability of oil within sight.

I would also say its more production figures than reserve figures which they have traditionally used as a tool to maintain price within a certain range, albeit with mixed results given many OPEC countries tendencies not to adhere fully to production quotas. Not that this has been such a big issues in recent years as most OPEC countries ran out of spare capacity to produce more even if they wanted to.