AP reports the typical American household will have spent a record $4,155 on automobile fuel this year – 8.4% of what the median family takes in, the highest share since 1981.

Don’t expect 2012 to be any better. More likely, fuel will be getting even more expensive.

Brent crude will average near $111/barrel for 2011, even more than in 2008 when oil prices hit a peak of $147.50/barrel. Some analysts think oil prices will average a bit less in 2012, perhaps averaging $105/barrel. Others analysts predict that oil prices will be even higher than in 2011, projecting WTI (which have consistently been significantly lower than Brent this year) to average $100 per barrel next year, eclipsing 2011?s average of about $95/barrel. Oil-price.net projects WTI prices to be at $112 a year from now.

Nobody is expecting oil prices to drop, or at least not much. Here’s a big reason why: Saudi Arabia, the world’s lowest-cost producer, requires a price of $91/barrel just to break even.

The glory days of cheap gas are over for good. Our memories aren’t playing tricks: remember gas wars, gas at 19.9 cents a gallon? In my Fiat 850 Spyder – $2000 new, right off the lot, and 50 mpg – driving seemed virtually free. We were young and immortal, oil was infinite, and the world was empty and ours for the taking. There were no bounds, no limits. Vietnam and then the first gas crisis in 1973 were the first intimations that the imperial project – to stride over not just the nations of the world, but over Nature herself – was destined to go awry.

A few were prescient. Limits to Growth was published in 1972, foreseeing humanity bumping up against constraints to both sources and sinks by the first decades of this century. Way back in ’56, Shell geologist M. King Hubbard predicted that U.S. oil production would peak in 1970 – a prediction that proved spot on.

Porter Stansbury at The Daily Reckoning posts this chart showing “real wealth” per capita in the U.S. since the mid-’50s.

Note that “real wealth” in the U.S. peaked about the same time as U.S. oil production. Coincidence?

Stansbury measures “real wealth” using a standard commodity index (the CRB) up to 1975 and gold post-1975 (when gold began to trade freely). When peak oil arrived in the U.S., Nixon took the U.S. off the gold standard. With the U.S. kissy-face with the Saudis, the dollar became the petrodollar.

I’m not sure I would put a lot of faith into this measure of “real wealth” – but the correlation of peak wealth with peak oil is provocative. There’s no question that the U.S., indeed the entirety of Earth, has become a poorer, more degraded home for humans since 1970, despite decades of “growth” and “progress”. That degradation doesn’t even begin to show up in our accounts.

Around 1970, reality arose and smacked us across the face.  Humanity has been working through the range of responses – denial, anger, bargaining, depression, not yet acceptance – ever since.

The last post commented on the stark climate warnings contained in the International Energy Agency’s World Energy Outlook 2011:  if we fail to implement new policies by 2017, we are on a dangerous track for a temperature increase of 6°C (11°F) or more.  The IEA’s energy supply and demand assumptions are also worth a look.

The Executive Summary presents the following demand and supply projection for 2035:

Oil demand (excluding biofuels) rises from 87 million barrels per day (mb/d) in 2010 to 99 mb/d in 2035. * * *

The cost of bringing oil to market rises as oil companies are forced to turn to more difficult and costly sources to replace lost capacity and meet rising demand. Production of conventional crude oil – the largest single component of oil supply – remains at current levels before declining slightly to around 68 mb/d by 2035. To compensate for declining crude oil production at existing fields, 47 mb/d of gross capacity additions are required, twice the current total oil production of all OPEC countries in the Middle East. A growing share of output comes from natural gas liquids (over 18 mb/d in 2035) and unconventional sources (10 mb/d). The largest increase in oil production comes from Iraq, followed by Saudi Arabia, Brazil, Kazakhstan and Canada. Biofuels supply triples to the equivalent of more than 4 mb/d, bolstered by $1.4 trillion in subsidies over the projection period.

The “supply” numbers total 100 mbd rather than 99 mbd – let’s presume the 1 mbd discrepancy is due to rounding errors. The IEA projects oil demand will hit 99 mbd in 2035, but the world will be producing only 68 mbd of conventional oil . . . leaving a 31 mbd gap to be filled. NGLs and unconventional oil are projected to cover 28 mbd of that, leaving 3 mbd to be covered by – biofuels? Didn’t the 99 mbd figure for demand exclude biofuels?

That aside, the IEA thinks that the next 24 years will see 31 mbd of “oil” from:

• Natural gas liquids – 18 mbd
• Unconventional sources – 10 mbd
• Biofuels – 4 mbd

This implies three things:

1. That natural gas liquid production will more than double by 2035, from about 8 mbd today.
2. That unconventional oil production doubles by 2035, from about 5 mbd today.
3. That biofuel production will triple by 2035.

Nick Hodge observes the big problem with this is that it’s never been done:

It took us 40 years to add 31 million barrels per day of conventional oil production — the easy stuff.

The IEA is saying we can add the same capacity in half the time using much harder-to-get resources.

Out of the 68 mbd of conventional oil that the IEA projects to be available, 47 mbd – twice the current production of OPEC countries in the Middle East – are from sources yet to be developed, just to offset depletion from existing sources. Really? The world is going to discover and/or develop two more Middle Easts worth of conventional oil, in just 24 years? Where, exactly?

Stuart Staniford at Early Warning suggests that the source of new supply is not likely to be Saudi Arabia. He points out that Saudi production has been fluctuating between 8 mbd and 9.5 mbd since 2003. In response to the interruption in Libyan production early this year, Saudi briefly boosted output to a peak of around 9.7 mbd or 9.8 mbd – not quite achieving a promised 10 mbd – but have since eased back to about 9.5 mbd.

Bottom line: is Saudi Arabia going to save the global economy’s bacon? Here’s Staniford’s assessment:

So are we any the wiser as to the great question of whether Saudi Arabia has significant spare capacity and could increase production to 12mbd or more if only they chose?  Only slightly I fear.  I interpret the fact that the Saudis couldn’t quite meet the 10 mbd promise and almost immediately backed off that, despite amply high prices, as consistent with the story that the recent Saudi production expansions have only gone to offset declines elsewhere (perhaps especially in north Ghawar).  The increasing rig count also suggests a lack of comfort with the amount of spare capacity presently available.

However, I can see that someone who thought the Saudis were able to produce more but are profit maximizers who intend to keep prices as high as possible consistent with not actually throwing the world economy into recession might also be able to tell a story about how the Saudis did the bare minimum to moderate prices after it became clear that the Libya price spike was causing global economic harm but then began gradually lowering production as prices slowly began to fall following the price spike, keeping the world in a state of slow growth, but some growth, while maximizing the Saudi take for its oil.  The one weak point in this story is that it offers no explanation for the rising rig count.

Of course – at this point maybe the difference between the two views doesn’t actually matter that much – either the Saudis can’t produce more or they won’t, but either way the effect is to keep oil prices high enough to be a significant constraint on a world economy that is already struggling.

Continued economic growth is dependent on continued expansion of energy supplies.

The EIA is schizophrenic in thinking there’s a way to square the circle. There’s only one way to head off catastrophic climate change: shrink the economy, by a lot, and quickly. Gail Tverberg at Our Finite World explores the implications:

If GDP growth and energy use are closely tied, it will be even more difficult to meet CO2 emission goals than most have expected. Without huge efficiency savings, a reduction in emissions (say, 80% by 2050) is likely to require a similar percentage reduction in world GDP. Because of the huge disparity in real GDP between the developed nations and the developing nations, the majority of this GDP reduction would likely need to come from developed nations. It is difficult to see this happening without economic collapse.

The reality is, we don’t have a choice. Other limits to growth aside, the energy resources necessary to keep the globe on the economic growth path simply aren’t there; growth will come to an end whether we like it or not. The choice we do have is whether to destroy Earth as a host for human life first.

Bad news: a new study finds that the prospects for avoiding dangerous global warming are bleak, indeed.

In the study, titled Emission pathways consistent with a 2°C global temperature limit,  the scientists reanalyzed a large set of previously published emission scenarios based on integrated assessment models. They found that in the set of scenarios with a ‘likely’ (greater than 66%) chance of staying below 2°C, emissions peak between 2010 and 2020 and fall to a median level of 44 Gt of CO₂ equivalent in 2020 (compared with estimated median emissions across the scenario set of 48 Gt of CO₂ equivalent in 2010).

Current climate models show if the increase in average global temperatures is to be kept below 2°C (3.6°F), emissions must not only peak by 2020, emissions must fall by almost 10% by 2020  – and then continue to fall rapidly to well under half of current emissions by 2050.

Climate scientist Neil Edwards commented on the study’s findings:

The alarming thing is very few scenarios give the kind of future we want.

The International Energy Agency (IEA) recently announced global CO₂ emissions decreased for the first time since 1990, due to the 2008-2009 economic crisis – but warned, don’t expect a trend. A large rebound is anticipated in 2010. (Note: a report published by the European Commission’s Joint Research Centre and PBL Netherlands Environmental Assessment Agency found that global carbon dioxide (CO₂) emissions increased by more than 5% in 2010, reaching an all-time high.)

The IEA’s findings are contained in a free document which contains highlights from CO₂ Emissions from Fuel Combustion 2011, an IEA statistics publication which will be released in November 2011. The document, which contains all the latest information on the level and growth of CO₂ emissions, has been released to inform the upcoming UN climate negotiations in Durban. Key findings include:

1. Two-thirds of global emissions for 2009 originated from just ten countries, with the shares of China and the United States far surpassing those of all others (combined, these two countries alone produced 41% of the world’s CO₂ emissions).
2. Between 1990 and 2009, CO₂ emissions from the combustion of coal grew from 40% to 43% and natural gas from 18 to 20%, while CO₂ emissions from oil fell from 42% to 37%.
3. Two sectors – electricity and heat generation and transport – produced nearly two-thirds of global CO₂ emissions in 2009, up from 58% in 1990.

In their study, the climate scientists found only three of the 193 scenarios examined would be very likely to keep the warming below the danger level – and all of those require heavy use of energy systems that actually remove greenhouse gases from the atmosphere. That would require, for example, both creating biofuels and storing the carbon dioxide from their combustion in the ground. Edwards put it this way:

What we need is at the cutting edge. We need to be as innovative as we can be in every way.

In the statement quoted above, Edwards is assuming that the objective is to preserve the energy-intensive economic growth paradigm. But he paradigm is the problem. Every day it is becoming increasingly clear that cutting edge technology and innovation are not the answer.

One example: many Oregonians across the political spectrum, including Governor John Kitzhaber, have promoted forest biomass as a energy source, thinking woody debris from thinning, brush clearing and removing dead trees could could help the state meet its renewable energy goals while at the same time restoring forest health and providing jobs in rural communities. But not so fast, say OSU researchers: managing forests for biofuel production will increase carbon dioxide emissions from the forests by at least 14%. The OSU press release quotes co-author Beverly Law:

Until now there have been a lot of misconceptions about impacts of forest thinning, fire prevention and biofuels production as it relates to carbon emissions from forests. If our ultimate goal is to reduce greenhouse gas emissions, producing bioenergy from forests will be counterproductive. Some of these forest management practices may also have negative impacts on soils, biodiversity and habitat. These issues have not been thought out very fully.

Looking to technology and innovation to enable humans to continue to pursue the economic growth that is consuming the very ecosystems that sustain us is just the denial of an addict. What is necessary is that we acceptance: growth is destructive and must be reversed. We must welcome and embrace the collapse of our current economic system, and learn to live within an economic system that conserves rather than consumes the larger systems of which it is a part.

A study by Lieutenant Colonel Christopher Fleming at the U.S. Army War College concludes the volatility we’ve seen in oil prices and the lack of increased production as a response to high prices is evidence that we’re hitting geological limits to global oil production.

The excerpt below is from the abstract of the study “Considering oil production variance as an indicator of peak production“:

The primary finding was unprecedented statistical variance in oil production rates as well as in oil prices beginning approximately 2005 to 2010. In the case of oil production rates, variance is at historically low levels. In the case of oil prices, variance is at historically high levels. The data indicate a new higher order of inelasticity between oil price and oil production.

These findings support peak oil forecasts in the range of 2005 to 2010 and together provide strong evidence that geological factors could presently be limiting world oil production.

The inelasticity between oil price and oil production Fleming talks about is evidenced by the wild swings in oil prices over the last six years, as seen in this graph posted by Stuart Staniford at Early Warning . . .

. . . while the lack of response from oil producers can be seen in this graph posted by Gail Tverberg at Our Finite World showing production from the Middle East and North Africa (MENA) since 1965.

MENA Monthly crude oil production, based on EIA data.

MENA’s oil consumption is rising, so even if MENA’s oil production could rise, that does not mean that oil exports would rise. For example, Saudi Aramco projects Saudi Arabia’s domestic consumption will reach an equivalent of 8.3 million barrels by 2028, more than double the 3.4 million barrels equivalent in 2009 – leaving precious little for export.

Ecological economist David Stern recently published a paper on the essential role of energy in economic growth, aptly titled ‘The Role of Energy in Economic Growth“. Stern observes that mainstream economic theory pays no attention to the role of energy; however, physics shows that energy is necessary for economic production and, therefore, economic growth. The “synthesis” model proposed by Stern explains the industrial revolution as a releasing of the constraints on economic growth due to the development of methods of using coal and the discovery of new fossil fuel resources.

Climate considerations aside, for business as usual – the continuation of economic growth – it’s bad enough that the world is bumping up against limits to oil production volume; however, the energy returned on energy investmen (EROI) is dropping, too – it’s costing more and more energy to produce the same amount of oil. A new study titled “A New Long Term Assessment of Energy Return on Investment (EROI) for U.S. Oil and Gas Discovery and Production” finds:

EROI for finding oil and gas decreased exponentially from 1200:1 in 1919 to 5:1 in 2007. The EROI for production of the oil and gas industry was about 20:1 from 1919 to 1972, declined to about 8:1 in 1982 when peak drilling occurred, recovered to about 17:1 from 1986–2002 and declined sharply to about 11:1 in the mid to late 2000s. The slowly declining secular trend has been partly masked by changing effort: the lower the intensity of drilling, the higher the EROI compared to the secular trend. Fuel consumption within the oil and gas industry grew continuously from 1919 through the early 1980s, declined in the mid-1990s, and has increased recently, not surprisingly linked to the increased cost of finding and extracting oil.

A new paper by economist James Hamilton titled Oil Prices, Exhaustible Resources, and Economic Growth documents that a key feature of the historical growth in production has been exploitation of new geographic areas rather than application of better technology to existing sources, and suggests that the end of that era is nigh. Hamilton shows that economic dislocations have historically followed temporary oil supply disruptions.  He concludes:

If the peaking of global production results in further big increases in the price of oil . . . the economic consequences of reduced energy use would have to be significant.

* * *

If the future decades look like the last 5 years, we are in for a rough time.

Most economists view the economic growth of the last century and a half as being fueled by ongoing technological progress. Without question, that progress has been most impressive. But there may also have been an important component of luck in terms of finding and exploiting a resource that was extremely valuable and useful but ultimately finite and exhaustible. It is not clear how easy it will be to adapt to the end of that era of good fortune.

Tom Murphy writes that we now find ourselves in an energy trap.

In brief, the idea is that once we enter a decline phase in fossil fuel availability—first in petroleum—our growth-based economic system will struggle to cope with a contraction of its very lifeblood. Fuel prices will skyrocket, some individuals and exporting nations will react by hoarding, and energy scarcity will quickly become the new norm. The invisible hand of the market will slap us silly demanding a new energy infrastructure based on non-fossil solutions. But here’s the rub. The construction of that shiny new infrastructure requires not just money, but . . . energy. And that’s the very commodity in short supply. Will we really be willing to sacrifice additional energy in the short term—effectively steepening the decline—for a long-term energy plan? It’s a trap!

A rough time, indeed. Effectively coming to grips with this new reality won’t be from the top down; it’s futile to look for or expect political solutions. Rather, doing so will require the kind of “magic” that begins with the individual, and works outward from there. It’s not the solution that matters, but the journey. We are all capable of taking that first step.

One of the predictions of peak oil theory is that peak oil would manifest itself in economic dislocation as the peak in global oil production approaches, because economic growth is dependent on ever-increasing supplies of energy. As energy becomes more scarce and more expensive, maintaining economic growth becomes more and more difficult until finally the economic edifice faces crisis and even collapse as its financial underpinnings become unstable.

Stuart Staniford at Early Warning points out that peak oil is not synchronous: the peak in oil consumption arrives earlier in some countries than in others. In the U.S., the peak oil consumption is clearly in our rear view mirror.

US consumption peaked in 2005. The major countries of western Europe peaked earlier, Italy in 1995, followed by France and Germany. Japan peaked right after Italy.

While oil consumption in most wealthy countries may be peaking, oil consumption is still growing in other countries – especially China and other countries in Asia and the Middle East. Norway and Australia are the exceptions.

The countries in which oil consumption is still increasing account for a little over a third of global consumption. As their oil consumption grows and global oil production fails to keep up, somebody must get by with less.

It should not be surprising to find the peak in oil consumption in the U.S. to be accompanied by a peak in vehicle miles traveled (VMT). VMT in the U.S. appears to have peaked in 2008.

With fewer miles being driven, it follows there should also be lessening demand for cars. Light vehicle sales in the U.S. almost certainly peaked in 2001, and the number of light vehicles on U.S. roads in 2008 when the number of vehicles sold fell below the scrappage rate. The light vehicle sales rate has remained below the scrappage rate ever since.

Could it also be that the U.S. has seen peak employment? As seen in this chart posted at Calculated Risk, the employment/population ratio and the labor force participation rate both appear to have peaked around 2001.

As Sharon Astyk points out, much of what has passed for “economic growth” over the last decades has simply been moving work from the household economy to the formal economy, where it can be measured (and taxed). That displacement of the household economy by the formal economy is a major reason why the participation rate rose over the last 50 years. That movement from the home to the workplace now appears to be reversing.

Even more startling than the decline in participation rates, the absolute number of people employed in the U.S. may have seen its peak – around 2007-2008, as seen in this chart posted by Charles Hugh Smith at Of Two Minds.

The formal economy is dependent on factors beyond the control of economists or politicians, and those factors have now begun to predominate as physical limits to growth have been reached or exceeded. As in times past when the formal economy has failed, people will increasingly abandon the pursuit of wealth and growth as the informal economy – household labor, barter and “black market” exchanges between friends and neighbors, volunteer work, reliance on family and even crime – takes up the slack and become a bigger and bigger part of our everyday lives.

The U.S. may never see a “recovery” from this period of economic crisis. Pity the poor politician who has to break the news to the American people that the party’s over.

A previous post (Oil supply constraints impacting housing, land use patterns) discussed a post by Sam Foucher at the Oil Drum (The JODI-EIA Divergence) examining data sources for global oil production figures. In that post Foucher observed that the U.S. Energy Information Administration relied on others for its data, implying that the accuracy and reliability of that data might be less than ideal:

The EIA does not collect international production data but apparently pays IHS for the data (at least until the recent budget cuts).

I asked the EIA to comment on Foucher’s observation.  Here’s the response I received from Patricia Smith of the EIA’s International Energy Analysis Team:

Thank you for your interest in the U.S. Energy Information Administration. I have checked with all of the staff involved in putting together our world oil production data series.

The statement “The EIA does not collect international production data but apparently pays IHS for the data (at least until the recent budget cuts).” is not necessarily 100 percent accurate.

It’s true, we don’t “collect” international data from any type of survey or similar tool.  Years ago, there was a program through the State Department, that sent out forms to the U.S. Embassy Posts in a number of countries to collect various mineral and energy data.  That program ceased because of staff shortages, and of course budget cuts.

Actually, we use a variety of sources in compiling our data series including,  IEA, Woodmac, Energy Intelligence (until recently), BP, company contacts, national sources, trade data, and industry reports (Platt’s, MEES, Reuters, Dow Jones, etc.).

In previous years, we did use IHS for a handful of countries with smaller levels of production (Cuba, Belize, etc.).

I hope this is helpful.

Evaluating the accuracy and reliability of EIA’s data series would thus require a thorough evaluation of each of the data sources EIA relies on, plus an evaluation of how EIA uses its data sources in arriving at its reported figures. No small task.

One thing is crystal clear: the recently-announced cuts in the EIA budget will mean EIA data will be less reliable and more open to question in the future.

Calculating the net climate impact of an activity is complex and fraught with uncertainties, requiring tracking many different emissions (not just CO2) and accounting for their (time-varying) impacts. Gavin at RealClimate notes a couple of caveats about the results of the study.

For shale gas extraction (and indeed for most fossil fuel extraction), a big issue is fugitive emissions. The estimates for fugitive emissions are uncertain because they are not being reported, either voluntarily by the industry or through regulation from the states. Fugitive emissions mostly consist of methane, which is relatively more important for a 20 year time frame than it is for a 100 year time frame by a factor of ~3. For lack of anything better, the Howarth study had to rely on admittedly poor observations.

Another problem is that, for other fossil fuels, fugitive emissions weren’t considered.

For an apples-to-apples life cycle comparison, one would need to also update the impacts of coal and oil to include their fugitive emissions, their impact on other short-lived components (black carbon, CO, etc). The Howarth study compared apples to oranges.

Still, the main point of the study remains valid: natural gas, conventional or fracked, isn’t the energy or climate panacea we hoped it was.

A new analysis published in Climatic Change, “Methane and the Greenhouse-Gas Footprint of Natural Gas from Shale Formations,” finds that shale gas fracking is worse than coal for its climate change impacts. In fact, if total methane emissions are factored in, shale gas turns out to have the greatest climate impact of all the fossil fuels – and conventional gas isn’t the salvation we thought it was, either.

Why? Methane leaks out during the fracking process:

Natural gas is composed largely of methane, and 3.6% to 7.9% of the methane from shale-gas production escapes to the atmosphere in venting and leaks over the life-time of a well. These methane emissions are at least 30% more than and perhaps more than twice as great as those from conventional gas. The higher emissions from shale gas occur at the time wells are hydraulically fractured — as methane escapes from flow-back return fluids — and during drill out following the fracturing. Methane is a powerful greenhouse gas, with a global warming potential that is far greater than that of carbon dioxide, particularly over the time horizon of the first few decades following emission. Methane contributes substantially to the greenhouse gas footprint of shale gas on shorter time scales, dominating it on a 20-year time horizon. The footprint for shale gas is greater than that for conventional gas or oil when viewed on any time horizon, but particularly so over 20 years. Compared to coal, the footprint of shale gas is at least 20% greater and perhaps more than twice as great on the 20-year horizon and is comparable when compared over 100 years.

This graph from the paper illustrates the climate impacts of various fossil fuels of 20- and 100-year time frames.

Although the authors concede that the data is far from perfect, natural gas may be just as polluting as coal in the long term – and far worse in the near term due to the higher warming impact from methane when it is first released to the atmosphere during the fracking stage.  Gas is no solution to our energy or climate crises.

Beginning this month, Transition United States is publishing a three-part series of papers titled Economic Resilience, authored by Joanne Poyourow. The first of the series is Economic Contraction.

Poyourow sets out to confront the the “triple crisis” of global warming, peak oil, and economic collapse. Any long-term plan we come up with is futile unless we anticipate that it will unfold amidst a world of economic contraction:

We have to plan for it, and put alternative financial tools in place to weather it, or it will undermine all of our other efforts.

Poyourow says it takes “raw courage” to confront the end of growth on a personal level, and even more to violate social and political taboos by doing so in public. But in the end, we have no choice – and our options are severely constrained:

Whether it will be a full-scale collapse into chaos like Jared Diamond writes about or Stoneleigh forecasts, or whether we will be successful in creating locally-managed “surge breakers” in time, remains to be seen.  But either way, we’d better try our best to get something in place.

The “techno-fantasy” conceptualized in the chart below – continued growth, “business as usual” – is just that, a complete fantasy. And the “green-tech stability” projection is also a fantasy: it represents a form of bargaining with rather than accepting the reality that renewable .

The uncomfortable reality is, no renewable energy sources are on hand that approach the energy density of fossil fuels. That leaves us with two options. We can choose to accept and deal with reality, with all the creativity, wisdom, and grace we can muster. Or we can continue to deny and resist reality,  destroy the land, the oceans, and the atmosphere and in the end suffer collapse as a consequence of our obdurateness.

The reality is, we  can’t force or cajole a finite world to accommodate infinite growth. As available energy and other resources become more scarce and expensive, there must be a descent.  A a severe contraction in our economic systems is inevitable. And we will have to adapt, voluntarily or involuntarily.

Against the backdrop of this reality, it’s no wonder that our politics – for example, Obama’s nonspeech outlining an energy nonpolicy – are nothing less than an absurdity.

Huge Bardi observes that we can learn an important lesson from the Japaneses – the pre-modern, pre-Fukushima, Edo period Japanese, that is. Like Japan, Earth is an island. To live sustainably and successfully on that island, the winning strategy is adaptation. We need to adjust our needs to what this planet can give us.

Stuart Staniford at Early Warning discounts the importance of last summer’s heat wave and drought in Russia to the current global spike in food prices, instead attributing the spike to diversion of food crops to biofuels. The results of his analysis are shown in this graph.

The biofuel feedstock appears as a negative quantity (the idea being it’s a deduction from global food supply). Staniford’s conclusion: biofuels are much more significant than Russian weather fluctuations as a factor affecting cereal food supplies.

Still think biofuels are a good idea? That it’s more important to feed our cars than our people?

A piece I posted a few days ago – How realistic are electric cars? – included a calculation of how much U.S. production of wind and solar energy would have to be increased over the next 20 years if electric cars were to become a significant component of the U.S. vehicle fleet. That calculation was off by an order of magnitude. A more careful recalculation finds that wind and solar generation capacity would have to be increased by a factor of 2,500 – 5,000. The post has now been corrected.

So how are we doing on our project to massively increase U.S. wind and solar generation capacity? This chart posted by Stuart Staniford at Early Warning is not reassuring, at least regarding wind.

The American Wind Energy Association’s Q4 2010 market report reveals that new installations collapsed in 2010.

The chart below shows what the U.S. energy mix is today, and what the U.S. Energy Information Agency projects it to be over the next 25 years. The nuclear and coal part of the mix are expected to drop only a bit, coal from 45% to 43% and nuclear from 20% to 17%.

[Note that 43% of 5+ trillion kilowatt hours per year is a lot more than 45% of the 4+ trillion kilowatt hours coal accounts for today - meaning coal consumption in electricity generation is thus expected to increase substantially.  So much for doing anything about global warming.]

The University of California, Berkeley Center for Entrepreneurship and Technology has published a technical brief which considers three scenarios for “maximum penetration” of electric cars into the market, projecting market share of new cars at 2015, 2020, 2025, and 2030 under differing cost assumptions.

The “market” in the above chart is defined as those likely to buy electric vehicles – 20% of the total market is excluded as not likely to buy electric vehicles.

Under the baseline scenario, 81 million electric vehicles would be on the road by 2030; under the operator-subsidized scenario, 151 million.

The U.C. study calculates that by 2030 the fleet of electric cars is estimated to require between 190 and 350 million megawatt hours of electricity per year. Currently, electricity generation in the U.S. totals around 4 billion megawatt hours per year. Powering an electric car fleet would require that the U.S. increase electricity generating capacity by 4.75%-8.75% by 2030. And that’s assuming no growth in electricity usage elsewhere in the economy, despite population and presumably economic growth.

In 2009, U.S. nuclear plants generated 798.7 billion kilowatt hours (or 7,987 million kilowatt hours) from 104 commercial nuclear generating units; “nuclear generating units” in the U.S. thus average 7.68 megawatt hours per year in output. The 602 coal power plants in the U.S. produce on average ~3.88 megawatt hours per year. Powering the projected U.S. electric car fleet would therefore require building 25-46 additional “nuclear generating units” by 2030. Or 50-90 coal-fired power plants.

Renewable sources, including wind and solar, currently account for about 10% of U.S. electricity generation – but two thirds of existing renewable capacity is hydroelectric, which is about tapped out and even under threat of decline. Solar and wind together account for only a little over 2% of renewable electric energy – about 72,000 megawatt hours per year. Powering the projected electric fleet from solar and wind alone would require increasing our solar and wind capacity by a factor of 2,500 – 5,000. Just to power electric cars,  nothing else: no growth, no phasing out of nuclear or decommissioning aging plants, no shutting down of CO2-emitting coal plants.

Phasing out nuclear power while we are still able so as to avoid catastrophic accidents, and phasing out coal  to save the planet as we know it, would seem to be of a bit higher priority than powering our go-carts.

Challenging times indeed. Replacing our gasoline-powered cars with electric cars should be about the last thing we should be focusing on.

Writer and homesteader Ellen LaConte has a new book titled Life Rules: Why so much is going wrong everywhere at once and how Life teaches us to fix it.

The book first diagnoses our condition . . .

Economic and polar meltdowns, inept, corrupt and bankrupt governments, long-term double-digit unemployment, climate instability, failing social services, collapsing ecosystems, a widening wealth-poverty gap, unprecedented species extinctions, mass migrations, peak fossil fuels, religious, ethnic and resource wars, spreading hunger, poverty, chaos and disease. . .

Why is so much going wrong everywhere at once? The global economy has gone viral. It is ravaging Earth’s immune system, triggering a Critical Mass of mutually reinforcing environmental, economic, social, cultural and political crises that are compromising the ability of Earth’s human and natural communities to provide for, protect and heal themselves.

The prognosis? If we keep doing what we’ve been doing, Life will last but Life as we know it—and a lot of us—won’t.

. . . and then offers a course of treatment:

What should we do instead? We should remember that Life rules, we don’t. The global economy operates as if it were larger than Life. It isn’t. As if it had multiple Earth’s to supply its appetites. It doesn’t. . .

Among the rules written into Life’s Economic Survival Protocol are local self-reliance, intercommunity and regional functional cooperation, non-carbon energy sourcing, resource conservation, sharing and recycling, and organically democratic methods of self-organization and governance. . .

We can learn Life’s rules and adopt lifeways that are at once authentically conservative, deeply green and profoundly liberating.

Robert Jensen interviews LaConte at Energy Bulletin. She reminds us something we seem to have forgotten – that humans are but bit players in a much bigger system.

The largest context – the largest high-functioning complex system within which we live our lives – is not the nation, nation-state system or global economic system but Life itself, the whole-earth, emergent and self-maintaining system of natural communities and ecosystems. That system, the ecosphere, teaches us the physical laws, the relationships and behaviors discovered in physics, biology and ecology and exemplified by the so-called “mystical” spiritual teachers, that we have to obey if we want to remain viable as a species.

The global economy has become pathological and is undermining the ability of human and natural communities to provide for, protect, defend and heal themselves – and here’s where LaConte invokes the analogy of AIDS/HIV:

I think we are presently at the HIV stage of the disease; it hasn’t quite yet become full-blown planetary AIDS. But I insist in the book that doing more of what we’ve been doing to exceed Earth’s physical means as well as our own fiscal ones — in other words, trying to heal and grow the very kind and scope of economy that caused this disease — is akin to injecting a patient who already has HIV with more HIV. That’s precisely what we’re doing.

Lynn Margolis argued in Symbiotic Planet that much of evolution on Earth is better explained by symbiosis – “the living together in physical contact of organisms of different species” – than by competition. LaConte similarly sees life on Earth as a cross-species, communitarian phenomenon. We’re not the “masters of the universe” we’ve come to believe we are, but rather a small part of a larger system. The most important and hardest lesson we will need to learn as a species is self-limitation. We have to stop behaving as if we were larger than or apart from Life and become constructive participants in it. If we fail to do so – if we don’t choose to transform ourselves and our lifeways – Life will force us to. Life rules, we don’t, and Life will not hesitate to rule harshly and even rule us out.

How can we possibly give up on economic growth? LaConte suggests focusing on what we need, as human beings.

Like everyone else, I need food, clean air and water, clothing, some sort of shelter, preferably warm in winter, occasional medicine or medical care, spiritual and physical exercise, colleagues, friends, family, if possible books, lots of quiet, a garden to work in, woods and wild not too far off. To love and be loved. To carry no debt. To believe there is some sort of livable, desirable future for the next seven generations. . . . To be happy, I need good work to do, work that I feel is, in my late mentor Helen Nearing’s terms, “contributory.”

We could all agree to get to work to fulfill that vision.

The Little Book of Life’s Rules for Surviving Critical Mass, a pocket version of key economic survival principles and practices culled from Life Rules, is soon to be serialized in posts at LaConte’s website.

Energy is used throughout the U.S. food supply chain, which is divvied up into seven stages:  farm production and agribusiness (agriculture), food processing and brand marketing (processing), food and ingredient packaging (packaging), freight services (transportation), wholesale and retail trade and marketing services (wholesale/retail), away-from-home food and marketing services (food service), and household food services (households).

The processing stage seems to be where most of the low-hanging energy-saving fruit is to be found. Michael Bomford in an article titled Beyond Food Miles at Post Carbon Institute explains:

Buying from the local farmers’ market offers great opportunities to cut down on food system energy use, but it’s not because the food there has traveled less than the food at the grocery store. It’s because the aisles of a typical grocery store are mostly filled with highly-processed and packaged food, while farmers markets offer mostly whole or minimally-processed foods.

The energy intensity of our food system keeps getting worse rather than better. During 1997-2002, per capita energy use in the United States declined 1.8%, while per capita food-related energy use in the United States actually increased by 16.4%. As a share of the national energy budget, food-related energy use grew from 12.2% in 1997 to 14.4% in 2002 and is still growing, from 14.4 percent in 2002 to an estimated 15.7% in 2007.

Transportation is a small fraction of the food system energy budget.

However, the energy intensity of food transportation in the U.S. food system is growing. Food shipments are increasing in volume, at the same time average shipping distances are increasing significantly. These food-mile increases translate into substantial growth in energy use by food-related freight services.

A big culprit in the increase in energy usage in the food system is replacing human labor with machines. About half of the growth in food-related energy use between 1997 and 2002 is explained by a shift from human labor toward a greater reliance on “energy services” across nearly all food expenditure categories. The report blames “high labor costs” in the food services and food processing industries, combined with household outsourcing of manual food preparation and cleanup efforts through increased consumption of prepared foods and more eating out. Replacing humans with machines is also responsible for the increasing energy intensity in the “agriculture” stage.

Household operations – which is defined to include energy use for major kitchen appliances, auto use for food-related trips, and related energy flows for home food preparation and serving equipment – account for the highest food-related energy use. But food processing shows the largest growth in energy use, as both households and foodservice establishments increasingly outsource manual food preparation and cleanup activities to the manufacturing sector, which rely on energy-using technologies to carry out these processes.

The obvious way to cut down on energy usage in the food system is to cut out as many of the intermediate stages between “agriculture” and “household” as possible: buy directly from the farmer, cutting out processing, packaging, transportation (remember, your trip to the farm is already included in “household”), wholesale/retail, and food service entirely, or at least as much as possible. If we want a more energy-efficient agriculture we will have to reverse the historical trend and begin to once again employ people rather than machines.

Michael Pollan sums up everything we need to know about food and health in seven words: “Eat food, not too much, mostly plants.”

“Eat food” means to eat real food – vegetables, fruits, whole grains, fish, and meat, too, as livestock are an essential component of an ecologically sustainable food system.  Eating food would not only be healthier for us. It’s the only means to a healthy economy and a healthy planet.

The IEA revised November up by 300 kbd (thousand barrels/day), and then showed December falling by the same amount.  OPEC and EIA data do not show a new peak being reached.

The IEA’s rose-colored glasses are focused on the future as well as the past.  Its latest monthly oil market report sees production continuing to climb this year,  predicting that world oil demand would average 89.13 million b/d in 2011, 360,000 b/d higher than previously forecast a month ago and some 1.8 million b/d higher than OPEC’s forecast which was published on January 17. The IEA’s projections prompted a nasty response from OPEC secretary-general Abdalla el-Badri. Badri berated the IEA for what he called “unrealistic assumptions and forecasts,” saying these served only to cause confusion and even fear on world oil markets:

Supplying the world’s media with unrealistic assumptions and forecasts will serve only to confuse matters and create unnecessary fear in the markets. Ultimately, this is adding to volatility in the oil market and destroying the stability that OPEC works so hard to support.

While we may or may not have reached a peak in production of “all liquids”, there’s no disputing that global peak oil per capita occurred in 1979.

And as we’ve discussed before, for example here and here, “all liquids” is not at all the same as crude oil.

Kenneth Worth at Seeking Alpha reminds us that global production of crude oil and condensate has now approached the levels of production seen in 2005 and 2008, just shy of 74 million barrels per day (mbpd) on a twelve month rolling average of production. Crude production is shown in the chart below.

Worth notes:

Six years of frenzied drilling and elevated prices have not yet produced the additional barrels needed by a growing global economy.

Prices remain high despite significant unemployment in the OECD and anemic economic growth. This is very nearly unprecedented. Only in the 1970’s, after OPEC voluntarily held about 10 mbpd in production capacity off the world market to sustain oil prices at artificially high levels, have we had oil production declining over a six year period. Are we perhaps now at “Peak Oil?”

Worth warns that the stage is set for another price shock.

[T]en percent unemployment in the US, and significant unemployment in Europe, has significantly reduced OECD crude oil demand over the three years since the 2008 oil price shock. The slack created by OECD economic contraction, however, has been picked up by increasing demand from China, India, OPEC and the rest of the developing world. Now that US and other OECD demand is increasing as well, albeit anemically, due to the economic recovery, the stage has been set for a second global oil price shock. Welcome to 2011.

There isn’t any evidence that crude production can increase beyond ~74 mbpd. Production in most of the world is declining, and increases from marginal producers are most unlikely to offset production declines from the much larger producers elsewhere in the world which continue unrelenting and unabated. And if the declining EROEI on crude isn’t bad enough . . .

. . . take a look at these U.S. government estimates of the EROEI on the stuff other than crude that make up “all liquids”:

And don’t be surprised if some of these estimates prove wildly optimistic.

Historically, economic growth has been highly correlated to the growth in energy supplies.

Bumping up against limits to growth in net energy supplies implies the end of economic growth as we have come to know it.

The Environmental Law Institute recently conducted a review of U.S. government fossil fuel and renewable energy subsidies for Fiscal Years 2002-2008. The findings are presented in the paper, Estimating U.S. Government Subsidies to Energy Sources: 2002-2008 – and illustrated in the graphic “Energy Subsidies Black, Not Green.”

Key findings include:

• The vast majority of federal subsidies for fossil fuels and renewable energy supported energy sources that emit high levels of greenhouse gases when used as fuel.
• The federal government provided substantially larger subsidies to fossil fuels than to renewables. Subsidies to fossil fuels – approximately $72 billion over the study period, as opposed to $29 billion for renewables.
• Almost half of the subsidies for renewables went to corn-based ethanol [which at best has a barely positive EROEI, and whose climate and environmental consequences are questionable].
• The largest subsidies to fossil fuels were written into the U.S. Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.
• The vast majority of subsidy dollars to fossil fuels can be attributed to just a handful of tax breaks, such as the Foreign Tax Credit ($15.3 billion) and the Credit for Production of Nonconventional Fuels ($14.1 billion, though this credit has since been phased out).

Growing water scarcity is a hidden financial risk for investors who buy the water and electric utility bonds that finance much of the U.S.’s water and power infrastructure.

That’s the conclusion of a new report by Ceres and Water Asset Management titled Water Risk in the Municipal Bond Market. More extreme droughts, surging water demand, pollution, and climate change are growing risks that threaten water supplies in many parts of the United States, especially the West, Southwest, and Southeast. For example:

• The City of Atlanta’s water supply could be cut by nearly 40 percent as early as 2012 due to the ruling of a federal judge.
• Lake Mead, the vast reservoir for the Colorado River, is quickly approaching a firstever water shortage declaration that would reduce deliveries to fast-growing Arizona and Nevada.
• Hoover Dam, which provides hydropower to major urban centers in California, Arizona, and Nevada, may stop generating electricity as soon as 2013 if water levels in Lake Mead don’t begin to recover
• More regular droughts and heat waves are likely to increase the operating costs of power generators in the Southeast, among them the Tennessee Valley Authority, which was forced to slash power generation for two weeks at three of its facilities in Alabama and Tennessee because of heightened water temperatures, costing the utility an estimated $10 million in lost power production.

Failure to include growing water risks means ratings agencies, and investors, and even utilities themselves aren’t realistically assessing the ability of public water and electric power utilities to repay their debt. Reduced revenues caused by water supply shortfalls can compromise the value of utility bonds in two ways. First, reduced revenues can undercut a utility’s ability to make timely payments to bond holders, potentially leading to default. Second, diminished credit capacity of a utility may result in a negative outlook or financial stress that may reduce the price of the bonds when sold on the secondary market.

To quantitatively assess a utility’s exposure to water undersupply, the model used in the study simulates the projected levels of monthly water flows from water sources used by the utility and compares the available water to the utility’s monthly demand. The simulations evaluated four different climate change scenarios with varying expectations of wet and dry weather, and with various stress scenarios that would constrict water supplies for one- to five-year time frames. The model was applied to eight investment-grade, 30-year public utility bonds: six water bonds and two electric power bonds, all in regions with growing populations and increasing pressures on water supplies.

Among the key findings for the six water utility bonds:

• The Los Angeles Department of Water & Power’s water system bond received the highest risk score of all water utilities, based on tight restrictions on local water supplies due to environmental regulations and prolonged drought. The municipal system, the nation’s largest, is also highly reliant on vulnerable water imports, including the Colorado River. The utility’s water bond was rated “AA+” and “Aa2” by Fitch and Moody’s, respectively, earlier this year.
• Atlanta’s Water and Sewer System received the second highest water risk score, a direct result of its reliance on one key local water supply whose future is jeopardized by a judicial order that may require the city to reduce its withdrawals by as much as 40 percent in 2012. The utility’s water bond received “A” and “A1” ratings from Fitch and Moody’s, respectively, earlier this year.
• The Phoenix and Glendale, AZ utilities—systems with high reliance on increasingly expensive and potentially volatile out-of-state water imports from the Colorado River—also received high water risks scores. The Phoenix bond is rated “AAA” and Glendale bond “AA” by Standard & Poor’s.
• Water risk scores for the Tarrant County, TX utility were double those of the neighboring Dallas system. The wide gap is the result of Tarrant County’s consistent drawdown on critical storage reservoirs to meet water demand, which makes the system more vulnerable to prolonged drought. Both utilities have identical credit ratings.

Among the key findings for the two electric utility bonds:

• Alabama’s PowerSouth Energy Cooperative, which provides power to 49 counties in rural Alabama and northwestern Florida, received the higher risk score, primarily due to the system’s potential vulnerability to increased water temperatures and lower flows in the Tombigbee River, the cooling water source for its largest coal-fired plant. The utility’s bond received “A-” ratings with stable outlooks from both Fitch and S&P last year.
• The Los Angeles electric power system‘s risks are driven in part by reductions in power generated at the Hoover Dam due to low water flows in the Colorado River Basin. The system may also see reduced power deliveries from one of its major coalfired power plants in Utah, due to heavy competition for dwindling cooling water flows. The utility’s bond received “AA” and “Aa3” ratings this year from Fitch and Moody’s.

The study shows that credit ratings agencies’ methodologies largely ignore water risk and may even unintentionally foster wasteful water consumption. Many credit ratings reward pricing and infrastructure plans that encourage increased water use and revenue growth with disregard for even near-term supply constraints and likely disruptions.

Ceres (pronounced “series”) is a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.

The buzz this week is over the IEA’s newly-released World Energy Outlook 2010. The two most interesting commentaries I’ve run across are by Kjell Aleklett at Countercurrents.org and by the staff at The Oil Drum.

Here’s Aleklett:

In WEO 2010 the IEA continues its tradition of predicting future oil demand without considering if supplying it is possible. Last year the IEA stressed the importance of oil for economic growth and concluded that 106 million barrels per day (mb/d) would be required by 2030, an increase of about 20 mb/d above current production. This year the IEA only predicts 99 mb/d by 2035 and avoids any discussion of economic growth. We can interpret this as meaning that the desired economic growth is not possible.

* * *

In WEO 2010 the IEA presents facts that mean only one thing – the peak of oil production is imminent. By showing this data without announcing this obvious conclusion the IEA is making a cry for help to do what, for them, is politically impossible. WEO 2010 is a cry for help to tell the truth about peak oil.

The Oil Drum piece ticks off the dubious assumptions underlying the report, which include:

• Net Energy. The WEO assumes all energy resources are equal, without considering ‘net energy – or in other words, energy return on energy invested (EROEI).
• Quality of Energy. One cannot simply substitute one type of energy for another, for example, electricity for gasoline.
• Economic consequences. Recessionary impacts may be the signal that the amount of net energy that the economy is receiving is too low.
• OPEC Politicized Reserves. The reserve figures from many of the countries that are being relied upon for increased oil production are untrustworthy.
• Questionable USGS Reserves. USGS published its last major set of reserve estimates in 2000, but it is not clear that these estimates are very useful in determining how much is actually extractable at prices economies can afford to pay. For example, just last week the USGS announced that most of the oil resources it had previously estimated to be in the National Petroleum Reserve in Alaska were in fact natural gas resources (of little economic value because the natural gas can’t be delivered to markets).
• No consideration of the “export land model.” As oil use by oil exporters rises each year, oil available for export to oil-consuming countries has been declining for the past five years.
• Overly Rosy View of Unconventional Natural Gas. Currently, production of shale gas is high and prices are low – but this may be a temporary aberration. Some think, as argued in this article and this article at The Oil Drum, that production costs are in reality much higher than current market prices, reflecting the low net energy return of these deposits. If the energy return of unconventional gas is too low, it may end up being left in the ground.
• Assumption that major improvements in energy intensity of GDP can be expected in the future. The EIA assumes huge reductions in energy usage per unit of GDP. Is this realistic?

• Failure to consider constraints other than oil – such as lack of water; depleting mineral ores; shortage of rare earth minerals; and limits on biofuels, such as lack of arable land and soil degradation due to repeated removal of organic material.
• Failure to consider cumulative costs. Under any scenario, huge investments in new energy and related systems will be required. Where will the capital come from, when governments are already spending far more than they are taking in in taxes and when the world’s financial system is already on the ropes?

The 2010 edition of the World Energy Outlook was released today (9 November), providing the International Energy Agency’s updated projections of energy demand, production, trade and investment, fuel by fuel and region by region to 2035.

The report, in a new approach, considers three scenarios: current policies; new policies (which assumes commitments on climate change action are honored);  and 450 (this last scenario assumes aggressive action to limit global warming to 2° C – but not enough to get back to the 350 ppm necessary to minimize the risk of climate catastrophe).

The assumptions underlying the “new policies” scenario are far from realistic. Gail the Actuary has posted this chart from the report at The Oil Drum revealing the questionable assumptions regarding future crude oil production.

Conventional crude oil is shown as holding steady to 2035 at a level slightly below peak levels reached in the period 2005-2008, reflecting some cutback in demand as a result of changes in governmental policies from the “current policies” scenario. In the “new policies” scenario, the IEA projects that oil will not peak until at least 2035 (production does peak, at 86 mb/d, just before 2020 in the 450 scenario – but not due to resource constraints). But notice where the bulk of the world’s oil is projected to come from by then: from “fields yet to be developed or found.” Are we willing to bet our future on the come?

Also, Saudi Arabia is expected to provide the major portion of increased production.

Unfortunately for the EIA, greatly increasing production is something the Saudis have said they won’t be doing. Rather, Saudi Arabia’s King Abdullah has said the kingdom will be saving the country’s hydrocarbon wealth for future generations. Saudi production, at least so far, peaked in 2005 at 9.6 million barrels/day. The Saudis themselves are saying that their production will never exceed ~12 million b/d, under the best of circumstances. And when Ghawar peaks, all bets on future Saudi production are off. Bottom line: even if Saudi Arabia is capable of increasing production and maintaining those increased levels of production over time – which is doubtful – the kingdom has said it won’t do so.

The agency forecasts that China’s demand will soar by 75% between 2008 and 2035, compared to an overall surge of 36% in international energy use. While Americans would still lead the world in per capita energy use, China will overtake the United States as the world’s largest energy user. China’s increased energy use is bad news for Earth’s climate.

The most troubling thing about the EIA’s approach is that it’s demand-driven: the EIA first figures out what the demand for energy would be under its various scenarios, and then deduces where the energy will come from.For example, here’s their scenario of oil demand through 2035 should nations take aggressive action to limit atmospheric CO2 to 450 ppm.

What’s missing is any realization that geological constraints rule, that economic constraints are a consequence of underlying geological realities, and that demand is just a poor stepchild. The current economic crisis should have driven that lesson home.