Showing posts with label recession. Show all posts
Showing posts with label recession. Show all posts

Wednesday, 27 November 2019

Responding to collapse, Part 15: shortages of diesel fuel

Lake Huron on a rare sunny day in November

In part 10 of this series I expressed the opinion that supplies of electrical power, diesel fuel and money will be at the heart of many of the troubles that lie ahead as collapse progresses. Especially for those of us living in small remote towns, as I recommend you do. Over the last few posts I've spent a lot of time considering the gradual breakdown of the power grid, the effects that will have, and how we might prepare for them. Today I'll move on to consider what happens when supplies of diesel fuel become problematical.

For a number of solid technical reasons, diesel engines are preferred to gasoline engines for ships, locomotives, heavy trucks, and agricultural equipment. If, like me, you're living in a small remote town, the latter two are of great importance. Essentially everything that gets here comes in a truck that burns diesel fuel. Much of that stuff falls in the "necessities of life" category. Agriculture is an important industry hereabouts, and whether it's organic or conventional, most of the work is done by machines that burn diesel fuel.

I can highly recommend the book "When Trucks Stop Running" by Alice Friedmann, who is also the author of the Energy Skeptic blog. Alice goes into much detail in this book about energy and transportation and just what will be affected when the trucks stop running.

There are a few particular aspects of the subject that I'd like to focus on in this post without recapitulating that whole book. I think it is useful to be aware of the sort of things that can cause supply problems. This will help us anticipate them, and have some advance warning so as not to be caught completely by surprise. When those problems are happening, when things get chaotic and confusing, it is good to have a little more certainty about what is actually going on so you can proceed with whatever action is required. And of course it is useful to have thought about supply issues, and the problems they will cause, and made some preparations so as to be able to do what needs to be done when the time comes.

But first, let's make one thing really clear. For moving heavy loads long distances there simply isn't any viable alternative to the diesel engine and the concentrated energy of diesel fuel.

Gasoline comes close (having about 77% as much energy per gallon as diesel), but all the problems are going to be just as bad for gasoline as diesel, and gasoline engines aren't as good for hauling heavy loads.

In many ways electric motors are even better than diesel engines, but the problem is getting electricity to a mobile electric motor. Batteries are the obvious solution, but the energy density of batteries is very low compared to diesel fuel. So low that battery powered long distance heavy transport just isn't feasible.

Electrified railways where power is supplied by a third rail fail on account of complexity and the difficulty of getting them set up in a nationwide network than could service all the locations currently serviced by roads.

The day may come when we are forced to use wood burning steam locomotives, but the energy density of wood not as good as diesel fuel. And coal is ruled out by concerns about climate change.

Sailing ships can do the job of diesel powered ships, but not as efficiently and we'll turn to them only when there is no alternative.

So we're going to be using diesel powered transportation as long as we can get diesel fuel. And when it is no longer available, we'll have to adapt by getting by with a lot less shipping and more reliance on locally produced goods. This is likely doable in many rural areas, but megacities appear to be unworkable under such conditions.

What might make the supply of diesel "problematical"? As I see it, this can take two forms: shortages and high prices, which are related in complex ways. There is also the issue of EROEI (energy return on energy invested) which is having negative effects on the economy even now when oil is still flowing.

Shortages

Let's look at what could cause shortages first.

Peak Oil enthusiasts traditionally talked about running out of oil in the absolute sense—when there is just nothing more left to pump out of the ground. But it has become clear that long before that happens we will run into problems because the remaining oil is non-conventional—it is in awkward locations and/or is more difficult to get out of the ground. Despite all the talk about renewable energy taking over from oil, in the fifteen or so years that I've been watching, the worldwide consumption of oil has gone up from 85 million barrels a day to around 100 million barrel a day, with much of the increased supply coming from non-conventional sources, primarily fracking in the case of the U.S. But this is clearly not, in the short term at least, leading to any sort of shortages.

Even with lots of reserves—oil in the ground that has already been found and is accessible using current technology—if the wells don't get drilled and/or the oil doesn't get pumped out of them, this can lead to shortages. Thus far it has definitely led to increased reliance on non-conventional oil.

If demand is high, why would we leave oil in the ground? International sanctions, civil unrest, revolution, war and speculation that development projects will prove unprofitable are a few reasons, currently happening in places like Iran, Iraq, Syria, Libya, Venezuela, and Canada's tar sands.

There is a lot of infrastructure between the oil well and the gas/diesel pump. Pipelines, storage facilities, refineries, more pipelines and storage facilities for refined products, railways, tank trucks (which burn diesel fuel themselves) and so forth. Pretty well all of it is quite exposed to both heavy weather and hostile human action.

All that infrastructure needs to be operated and maintained as well, and even if it isn't physically damaged, money and organizational problems in the companies responsible, and things that interfere with the workers getting to work, like strikes, civil unrest or war, can also interrupt oil supplies.

I think we can expect more storms (climate change) and more hostile action (wars, civil unrest, strikes) in the years to come, so it is pretty reasonable to expect that there will be shortages caused by this sort of thing. There is some redundancy in the system, so a single point of failure is unlikely to do much harm, but it pretty realistic that multiple points failures may actually happen. Especially if things get so bad that single point failures aren't attended to in a timely fashion.

Such shortages will be uneven, unsteady and unequal, as I am so fond of saying.

Increasing, and Fluctuating, Fuel Prices

Since almost all shipping is done by companies that are in business to make a profit, the price of fuel can cause supply chain problems just as serious as actual shortages. Prices can be forced up by a number of mechanisms.

The various grades of crude oil yield different proportions of fuel oil (diesel) and gasoline. So the kind of crude that is available can, depending on relative demand for diesel and gasoline, lead to a shortage of one or the other and an increase in its price. Sulfur in diesel fuel causes air pollution and acid rain, and diesel fuel for use on land is required to be low sulfur. Traditionally, marine fuel was allowed to be high sulfur, but regulations are changing shortly and ships will have to start using low sulfur fuel or install filtration equipment on their exhaust stacks. This is likely to cause an increase in the demand for low sulfur diesel fuel and an increase in its price.

The free market is a crude instrument for determining prices and can respond speculatively even to rumours of upcoming shortages.

Again, Peak Oil folks traditionally talked about supply problems causing the price of crude oil to go through the roof, to perhaps several hundred dollar per barrel. Clearly that would have disastrous effects on all industries, causing a classic Peak Oil style economic crash.

They believed this would happen because that the demand for oil is quite inelastic, but it has turned out not to be so. Increasing oil prices have a damping effect on economic activity of most sorts—when the price goes up, it triggers a recession, causing the demand for oil to decrease and preventing the price from increasing as much as it otherwise might. To keep the economy growing nicely, the price of oil needs to stay below about $30 per barrel. For the last few years it has been well above that price, and the economy has had problems. Yes, I know that the financial sector of the economy has continued to grow, but it is not nearly so dependent on energy as the commercial (industrial, wholesale, retail) sector, which has not done nearly so well.

Turning to non-conventional oil to meet demand does hurt the profitability of oil companies. Depending of the particular source, they need to get somewhere between $60 and $100 per barrel to be profitable. There is no such thing anymore as a sweet spot where both the economy and oil companies are happy. I think this will lead to the eventual demise of many oil companies, but in the meantime it leads to volatility of oil prices and discourages oil companies from investing in discovery of new reserves of oil.

EROEI, the energy cost of energy

One characteristic of non-convention al oil is that it takes more energy to get it out of the ground. Its "energy returned on energy invested" (EROEI) is lower. This also applies to many new discoveries of what would still be called conventional oil. In the short term the obvious consequence of this is energy sprawl—fracked wells dotting the countryside, tar sands projects springing up in the bush of northern Alberta, drilling platforms sprouting wherever there is under sea oil and so forth. In the long term, using low EROEI energy sources, be they fossil fuels or renewables, causes a strange malaise in the economy which stifles growth, makes it difficult to raise capital for new projects and eventually even hard to find money to maintain existing infrastructure.

The oil business isn't the only business to be effected by this, but it is certainly one of them.

Problems Caused by Diesel Supply and Price Issues

So there will be shortages and threats of shortages, and increases in the "at the pump" price of diesel fuel. And because capitalistic countries practice rationing by price, the price will be allowed to go up to clamp down on demand.

In Europe and South America this will probably lead to trucking strikes, but here in North America not so much. Instead shipping companies will just become less profitable and eventually go quietly bankrupt, and/or be taken over by other companies who will charge more and provide less in the way of service. Either way, this will lead to temporary interruptions in the supply of many goods, including fuel.

Eventually when the situation becomes serious enough that governments can no longer ignore it or pretend that the market will eventually correct the situation, we may see price controls and real rationing for diesel fuel.

Adapting to Supply Issues

The growth in the practice of "just in time" delivery in recent years leaves us vulnerable to supply chain disruptions. And in less sparsely settled remote areas, which are less profitable for shipping companies to service, such interruptions are even more likely than elsewhere.

The first response must to be abandon just in time delivery and stock locally enough of what is needed to get you through short interruptions. Local distributors will be reluctant to do so because it will hurt their bottom line, so I would suggest that individuals, families, neighbourhoods, group of friends, etc. take the problem in their own hands and stock up on necessities. Stocking up on food is one thing we should be doing right now and I can recommend the book Food Security for the Faint of Heart, by Robin Wheeler, as an excellent primer.

As the situation worsens and some goods become largely unavailable there are basically two ways to adapt: learn to do without, or set up to produce things locally. Which course is taken will be determined by how vital the goods are and how hard they are to produce locally.

I am in a bit of a minority among kollapsniks in that I think the breakdown of supply chains, just like the power grid, will happen gradually, with infrequent, short interruptions at the start, gradually becoming more frequent and longer, until eventually the system can't be relied on at all. And I suspect this will take at the very least a matter of months and more likely quite a few years.

This is fortunate in that it will give people a chance to wake up to the reality of the situation and take steps to adapt before it is too late to do so. Fortunately in areas like the one where I live there is quite a bit of agricultural production that can be diverted for local human use. And when there is no way to ship such goods out of the area, farmers will be more eager to serve local markets. Of course, when diesel fuel is in short supply, they will need help from town folks with harvesting and eventually with planting.

A collapse aware municipal government could be of great help in organizing such things, but unfortunately most local governments are focused on growth and boosting local business, and will be caught by surprise by the sort of thing we are talking about here. This is why I have been urging my readers who live in small towns to develop a network of friends and to make sure it includes some farmers.

Ideally, we'd set up some local co-operative ventures to supply the necessities of life. But things will have to get a fair bit worse than they are right now before there will be much interest in doing so, and before BAU has been weakened enough that is it possible to compete with it.

What follows is my response to a comment on a recent post questioning my idea of a slow collapse.

Fast vs Slow collapse

In the "collapshere" today it seems that the majority of voices are predicting a hard fast collapse and one that is due any day now. That has hardly changed in the last 20 years, and some people, notably KMO of the C-Realm podcast, has thrown up his hands in disgust with the standard Peal Oil narrative.

Of those making strong arguments for a fast collapse, David Korowicz, Ugo Bardi and Gail Tverberg come to mind.

David Korowicz, in his famous essay, talks about a financial crash leading to a supply chain/commercial crash as banks fail and can no longer supply credit. Towards the end of the same essay he acknowledges that there would be different degrees of crash in different countries.

Ugo Bardi talks about the Seneca cliff—how things that take a long time to build fall apart quickly. Fair enough, but the developed world took hundreds of years (from the Renaissance to the present) to build, so a few decades to fall apart seems pretty reasonable to me.

Gail Tverberg talks about the world being so closely networked together, that if one piece quits working, it all will. But she never looks in detail at how this might work, at the real details of how those networks operate.

On the other side of the argument, I favour people like John Michael Greer and Dmitri Orlov. Greer offers the idea that the people who are in power definitely don't want a collapse and have much they can do to prevent or slow down a collapse. Orlov talks about five levels of collapse—financial, commercial, political, social and cultural. And he points out that collapse may stop at any of those levels, there being in many cases nothing to force it all the way to the bottom.

My argument combines both those of Greer and Orlov and adds another element. It isn't just the people in power who don't want a collapse, it's most of the rest of us as well. You might assume that the rest of us have little say in the matter, but I don't believe this is so.

There are a great many people (in infrastructure and supply chain industries, for instance) in positions where they can do something about collapse. Especially if they realize that it is happening and refuse to just let it proceed unimpeded. Much of collapse consists of things that quit working because confidence has been lost in the system.

In many cases they could be kept working if those involved chose to do so. Or failing that, alternatives could be found if people chose to co-operate in doing so.

The availability of credit is a prime example. Currently businesses rely on banks to provide guarantees when they (the businesses) are dealing with people they don't know. But there is no fundamental reason why we have to rely on the existing banks, and no reason businesses couldn't set up alternative arrangements in order to keep functioning.

The thing is to realize what is happening and what can be done to stop it. A lot of people think that managers make things work and working class people are no more than cogs in the machine, but in fact anything a manager "accomplishes" actually gets done by a worker who knows a lot more about what has to be done than his boss.

The other thing is that we are not going into this completely blind. Already there have been financial crashes, large scale grid failures and so forth. I think in the near future we will see partial and temporary supply chain breakdowns and many breakdowns at the retail level of our commercial systems. But people at every level in the system will get wise to these events and skilled at containing the damage and patching things back together again.

Of course the system will get shakier as this goes on and parts of it will be abandoned when they are deemed to be beyond repair. This will lead to areas being cut off from vital supplies and in large population centres there will be no possibility of relying on local supplies. This is as close to a hard fast collapse as I expect to see. But it will still be localized and early in the process there will still be places for those affected to seek refuge and resources to mount relief efforts.

I have already written at length on how this might play out in small towns with the local resources to feed themselves and at a sufficient remove from large centres so as not to be overwhelmed by refugees.

For now that's about all I have to say, although I am sure there will be some comments to spark further thought on my part. Next time we'll talk about money and how we can adapt to the failure of the financial and banking systems.

Note:Readers' comments did indeed spark further though, resulting in an "Addendum" post which can be found here.

The topics covered are:
1) Diesel vs. battery powered semi trucks for shipping and
2) Biodiesel powered tractors vs. horses for farming.


Links to the rest of this series of posts, Preparing for (Responding to) Collapse:

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Sunday, 26 November 2017

Collapse Step by Step, Part 8

Lake Huron Waves Breaking Along South Pier, Kincardine

The Bumpy Road Down, Part 1

The term “bumpy road down” refers to the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity and make for a slow step by step collapse, rather than a single hard and fast crash. Indeed, that is where the "step-by-step" in the title of this series of posts comes from. And yes, many of the individual steps down will happen quite quickly and seem quite harsh. But it will likely take many steps and many decades before we can say collapse is essentially complete, and between those steps down there will (in many areas) be long periods when things are stable or even actually improving somewhat.

The fast collapse is a favourite trope of collapse fiction and makes for some exciting stories, in which stalwart heroes defend their group from hungry hordes and evil strong men. And if the story happens in the U.S. the characters get to do their best to stop a whole lot of ammunition from going stale. But it seems to me that in most parts of the world things will progress quite differently when disaster strikes. Indeed there is a branch of sociology which studies how people and societies respond to disaster, and it has identified a set of incorrect beliefs, known as "the disaster mythology" that much of the general public holds on the subject. In particular, the expectation of looting, mass panic and violence is not borne out in really. Here are some further links on the subject: 1, 2, 3, 4.

Dysfunctional as today's world may seem to many of us, it is working fairly well for those who are in power. They have a great deal invested in maintaining the "status quo", and in making sure that whatever changes do happen don't have any great effect on them. They also have a lot of resources to bring to bear on pursuing those ends, and a lot of avenues to go down before they run out of alternatives.

The other 80% of us, who are just along for the ride so to speak, still rely on industrial society for the necessities of life. We are hardly self sufficient at all, dependent on "the system" to a degree that is unprecedented in mankind's history and prehistory. As unhappy as we may be with the way things are at present, it's hard to imagine collapse without a certain amount of trepidation. Denial is a very common response to this situation.

Some of us, though, aren't very good at denial. Even if we only follow the news on North American TV, which largely ignores the rest of the world, we've seen lots of disturbing events in the last year or two and it is hard not to wonder if they are leading up to something serious. Many people in the "collapse sphere" are predicting a major disturbance in the next few years, and some think that this will be the one that us takes down—all the way.

I definitely agree that something is about to happen, but I don't think it is going be the last straw. Just one more step along the way.

As always, I am directing this mainly to those who are not highly "collapse aware", so a closer look at what's going on and what this next big bump might look like would seem to be a good idea. And of course I am making generalizations in what follows. As always, things will vary a good bit between different areas and at different times, and all of this will affect people of the various social classes differently. Also beware that I am not an economist, just a layman who has been watching the field with keen interest for some time. What follows is a summary of what I have learned, in a field where there is lots of disagreement and where the experts themselves have been wrong again and again.

Despite all the optimistic talk about renewable energy, we are still dependent on fossil fuels for around 82% of our energy needs, and those needs are largely ones that cannot be met by anything other than fossil duels, especially oil. While it is true that fossil fuels are far from running out, the amount of surplus energy they deliver (the EROEI—"energy returned on energy invested") has declined to the point where it no longer supports robust economic growth. Indeed, since the 1990s, real economic growth has largely stopped. What limited growth we are seeing is based on debt, rather than an abundance of surplus energy. And various adjustments to the way GDP is calculated have made the situation seem less serious that it really is.

Because of the growth situation, investors looking for good returns on their money have been hard pressed to find any and so have turned to riskier investments, which has resulted in speculative bubbles and subsequent crashes. The thing about bubbles is they are based on trust. Trust in some sort of investment that in saner times would be recognized for the risky proposition it really is. But always there comes a day when the risk becomes obvious, people rush to get out, and the bubble crashes.

The dot com bubble was the first to burst in this century, and the real estate bubble in the US was the next, leading to the crash of 2008.

After 2008 many governments borrowed money to bailout financial institutions (banks) which were in danger of failing, since that failure would have had a very negative effect on the rest of the economy. To control the cost of that borrowing and stimulate the economy, they lowered interest rates. These low interest rates have made it possible to use debt as a temporary replacement for surplus energy as the driver of the economy. Unfortunately this is pretty inefficient—it takes several dollars of debt to create a dollar's worth of growth, and the result has been debt increasing to totally unprecedented levels.

Meanwhile, much of the ill advised risk taking in the financial industry that led to the crash in 2008 has continued on unabated. You may wonder why responsible governments didn't enact regulations to stop that sort of thing. And indeed they did, to a limited extent. I suspect, though, that really effective regulations would have stopped growth cold, and no one was willing to accept the negative results of that. Better to let things to go on as they are, leaving future governments to worry about the consequences.

So, in 2017 we are deep into what might be called a "debt bubble." It relies on trust that interest rates will remain low and that any day now there will be a return to robust growth so that we can all make some money and pay off our debts. Those are risky propositions, to say the least.

On top of that, low interest rates have made it much more of a challenge for pension funds to raise enough money to meet their obligations, a vital concern for retired baby boomers like myself.

Those same low interest rates have made it possible for many non-viable or barely viable businesses to continuing operating on borrowed money, where under more normal circumstances they would have been forced out of business. This makes for a weaker economy, not a stronger one.

Here in Canada we still have a real estate bubble going on, especially in cities like Toronto, Calgary and Vancouver, and that despite recent government efforts to cool the real estate market by making it more difficult to get a mortgage, and by applying a tax on foreign real estate investors.

And over the last year that have been a long list of natural disasters which have increased the financial stress on governments, insurance companies and even re-insurance companies (who insure the insurance companies themselves).

The more conventional economists have come to think that all this is a normal situation and that it can just keep on keeping on. But there are others who think that this will lead to a crash of even greater magnitude that 2008. And many kollapsniks think this crash will mean the end of industrial civilization.

Some commentators expect this crash to take the form of a rash of debt defaults by governments who can no longer carry the debt loads they have built up. And a similar wave of bankruptcies of those shaky businesses I was just talking about, when they finally get to the point where they can no longer hold on. Tim Morgan, one of my favourite economists (who is certainly aware of the possibility of collapse), speculates that this bubble may burst in a different way than those of the past, with the collapse of one or more currencies. He points to the British pound as a prime candidate for the first to go and thinks that the U.S. dollar may follow it.

Other experts I've asked say that while the U.S government does have huge debts, they are not so large in comparison to the size of its economy—an economy that is strong enough that trust in it is unlikely to fail. I am not so sure. Much of the strength of the U.S. dollar comes from the fact that all trading of oil is done in it. If you want to buy oil then you need U.S. dollars, so the demand for them is always high. But a number of countries who are not allies of the US have proposed abandoning this system, suggesting that they are willing to accept other currencies for their oil. If this were to happen on a large scale it would significantly weaken the US dollar.

But it takes some sort of unusual event to start a crash like this, to initiate the loss of trust. And that brings us back to the fossil fuel industry.

While the falling EROEIs of fossil fuels have hurt economic growth, it is a mistake to think that those fuels are not still the life blood of our civilization. The success of modern industry is based on the productivity boost provided by cheap energy. The price of oil, for many years, was a fraction of its worth in terms of what could be made with the energy embodied in that oil. But when the price of energy goes up, it reduces the profitability of industry, often leading to a recession.

The oil prices I quote here are for Brent crude, just to keep things simple. In fact, oil trades at a dizzying variety of different prices, depending on where it comes from and its quality, among other things. If you look back over the history of recessions since the 1950s it is interesting to note almost all of them were preceded by a spike in the price of oil. In the summer of 2008 the price of oil, which had been going up for several years, topped out just before the crash at almost $140 per barrel.

After the crash, the economy slowed down significantly, and the price of oil dropped to around $30 per barrel due to falling demand. Starting in mid-2009 the economy began to recover and the price of oil increased to over $100. This appeared to be a straight forward case of supply and demand—an indication that the supply of oil was barely keeping up and suppliers were being forced to turn to more expensive sources of oil to meet the demand.

Then in mid 2014 something surprising happened— the price of oil and many other bulk commodities began to go down. By early 2016 the price of oil was under $40/barrel, and it stayed in the range between $40 and $60 until quite recently when it edged up over $60.

All kinds of ideas have been put forth as to why this drop in the price of oil happened, many of them contradictory. It is my thought that two things have been happening. First, demand destruction—a slowing down of the world economy caused by high energy prices. Second, a temporary increase in the supply of oil, mainly from fracking in the continental US and tapping of unconventional oil—tar sands in Canada, heavy oil in Venezuela, and deep offshore oil in various place around the world, that were suddenly profitable when the price was around $100 per barrel.

Whatever is the cause, it is clear that we have had a surplus of oil for the last few years, and this has kept the price down. OPEC discussed limiting supply to force the price back up, but very little came of it, even though the lower price was severely hurting the economies of the OPEC nations.

In the short run, lower oil prices have had a beneficial effect on economic growth. But unfortunately, the big oil companies were making so little profit that they couldn't afford to invest much in oil discovery.

Regardless of what you may think of the idea of "peak oil" on a global basis, it is a simple fact that the output of any individual oil field declines as it ages. Exploration for new oil aims to match that natural decline with new discoveries. For conventional oil, that has not happened since 1963 and by the start of this century this was becoming a problem. A problem that likely had something to do with the run up of oil prices prior to 2008.

Following 2008, higher prices and improved technology (like fracking and the syncrude process for getting oil out of the tar sands) made more oil accessible. But with the current lower prices, that is no longer the case. Furthermore the wells opened up by fracking are proving to have very high decline rates.

So it seems that sometime in the next year or two, the decline rate of the world's oil fields will have eaten up the surplus of oil. Discovery of new oil fields doesn't happen overnight, so there will be a crunch in oil supply. Not that there will be no oil available, but oil suppliers will be hard pressed to keep up with the demand and the price will spike upward. There may even be shortages of some petroleum products until those higher prices pull demand back to match the available supply.

It seems very likely that such a spike in the price of oil will touch off a loss of trust leading to a recession of such severity as to make 2008 look minor.

In my next post in this series I'll look at how that recession—might as well call it a crash—might proceed and what will likely be done to mitigate its effects.


Links to the rest of this series of posts:
Political Realities / Collapse Step by Step / The Bumpy Road Down

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