The Lemon Fool

Superb, thought provoking macro stuff from Gail Tverberg.

https://ourfiniteworld.com/2019/06/12/s ... rom-china/

I agree with her analysis that the direction to cease to perform plastic recycling tells us something about the precarious nature of China at present.

The long energy depletion emergency is finally upon the Land of the Dragon and it is responding rationally by tightening up its activities.

The question for me is what do I do about it? If China stumbles as it appears to be en-route to doing, every Western consumer market will take a hit. I am heavily overweight primary resource producers but if Chinese commodity demand dips they will take a bath...

The only asset class I think might be safe in a Chinese recession is gold. Gold has never looked better!

One of the most interesting posts ever seen on TLF.

Shows the true size of economies. Draw your own conclusions.

Thanks. The normal Gail stuff, much of which I happen to agree with. Anybody who used to be a ToD reader (the first ToD - The Oil Drum, not tod talks) will be well versed in Gail. She is good at picking up relevant stuff and combining it

EROI is the key number. For Chinese coal it is weak and declining according to most sources and anecdote (including my own discussions with CPC officials running coal regions).

https://cdn-images-1.medium.com/max/1200/1*u8l5XlTPWHRoL5NK_eAMDg.png

https://www.sciencedirect.com/science/a ... 1513003856
https://medium.com/insurge-intelligence ... 33df2aeb6b
https://assets.publishing.service.gov.u ... ources.pdf
https://ourfiniteworld.com/2018/04/12/e ... -comments/
https://link.springer.com/article/10.10 ... 017-0187-9

There is trouble ahead, but the ability of politicians worldwide to keep on propping up the business-as-usual system until after their time in office never ceases to amaze me, so I don't know when the trouble will arrive.

regards, dspp

Great links dspp. I was also an avid Oil Drum reader back in the day. It honestly changed my life: seeing the world from the biophysical/energy perspective has improved my understanding of so many puzzling things. It certainly has made me a better investor.

One or two things you have written previously about wind energy immediately put Euan Mearns of ToD in my mind.

Anyway: That last paper is chilling:

A steady declining trend can be observed in the EROI ratios of both the coal and the oil and gas industries due to the depletion of shallow-buried coal resources and of conventional oil and gas resources. This declining EROI trend is generally consistent with the approaching of peaks of physical production of the fossil fuels. The declining EROI ratios in turn mean more and more energy inputs are needed to produce the same amount of energy output. Such a situation will be unsustainable for Chinese society if China cannot find new and abundant energy sources with high EROI values, or find some way to support one and one half billion people at a dignified standard of living by much less energy-intensive means

China is now facing a future of ever tightening domestic energy production constraints. China is the major world industrial producer.

There is no way the world energy market can possibly meet the demand gap. It’s the peak oil, the peak everything problem. What further action will Xi and his successors be forced to take to keep the story of modern China going?

Great information.

It is also interesting that Hong Kong is currently rebelling, the primary reason given being concerns about extradition back to China, but it is also likely that the effects of US tariffs are irritating the situation.

The points made regarding exhaustion of resources are a regular theme that has been played out since Malthus and with much more regularity and power from the 1970's with the peak oil thesis and more recently with climate change.

On the one hand there are the folk who argue that these are extinction like events for the modern economy as we know it, on the other that these are just stimulus points that will cause everyone to change their behaviour. Perhaps I am a little too Panglossian, but as I see things there is now the technology to power all of the world, including China from renewables with increasing living standards and with a little effort to re-cycle most of the plastic that we use today. There is imho more of a problem with mindsets than with potential solutions which is the best way around.

As I look at transportation now it looks inevitable to me that this will become predominantly electrically powered even air travel up to around 1000 miles. Those types of developments would have been impossible to rationally discuss 10 years ago, but now there is a lot of money going into make them a reality. There are imho huge investment opportunities here.

I have always considered the use one and land fill model for plastics to be doomed and that it would eventually have to be replaced with a re-cycle model and that that would extend to every manufactured product. More huge investment opportunities.

Another area that I believe has investment possibilities is a move away from meat as a primary food source with replacement being made from vegetables. There are many reasons for this belief including the potential food value return from crops v than from animals, the former is very much larger and to have better world wide living standards we need good quality protein.

So I look at the coming limits and the technology appearing to provide alternatives, as very attractive investment opportunities. I expect a lot of these developments to move quite quickly as the economics for much of the emerging tech is better than existing tech.

Regards,

One thing to bear in mind that ever since the 1973 oil crisis the global economy has become much more efficient at using energy. The amount of energy required to produce 1 unit of GDP has been falling quite steadily over this period. I would expect this trend to continue, partially offsetting the reduction in available energy inputs.

The IEA in 2017 reported that the energy required per unit of GDP has fallen by 2.1% per year since 2010.

https://www.iea.org/newsroom/energysnap ... nsity.html

https://en.wikipedia.org/wiki/Energy_intensity

And of course the decline in coal should provide a massive spur to innovation in energy production and use. I would expect new technologies and methods of producing energy to offset quite a bit of the loss of coal, though the timetable for this may not coincide all that well with the decline in energy production.

As to plastics, I would expect to see innovation in bio-degradable plastics and/or substitutes to eventually solve the problem of one-use plastics clogging up the environment (maybe a plastic tax?).

To some extent all energy sources can be changed into each other. Hence it is an overall peak extraction that is key rather than necessarily any one particular source. Oil and Gas tend to be the marginal production here.

It was the peak of conventional oil extraction that kicked off the 2000s financial crisis. My personal guess and I have not tried to study the figures for about a decade is that we won't see the peak from non-conventional until the 2020s. EROEI will always dominate the situation, however.

There is a distinct "doomer" undercurrent to the original article, such that the consequences of almost everything are interpreted as being (highly) negative, with virtually no scope for positive consequences. Essentially, assuming that humans won't respond to feedback, adapt to changing circumstances or innovate, despite all the lessons of human history...

It's funny the OP should mention gold, as the narrative style of the article linked to - that of an expert in their field making bold (overconfident) & usually foreboding forecasts : using their detailed knowledge to rationalise why they're right without much analysis of all the areas where they might well be wrong - is catnip to goldbugs.

I particularly liked this bit:

We don’t know what is ahead, but we know that the low points on Figure 9 were very bad times, even though energy consumption in total was not contracting. <snip> The decade of the 1990s was the decade of the collapse of the central government of the Soviet Union.

Well, we certainly wouldn't want a return to the 1990s would we? Booming economies, booming asset markets, grim days indeed!

Sensible investors will likely read this article and file it away along with everything else they read, keeping a flexible, generalist's view about what the future holds, as it's pretty much guaranteed to never match the forecasts of niche experts.

tikunetih wrote:It's funny the OP should mention gold, as the narrative style of the article linked to - that of an expert in their field making bold (overconfident) & usually foreboding forecasts : using their detailed knowledge to rationalise why they're right without much analysis of all the areas where they might well be wrong - is catnip to goldbugs.

Particularly when you read stuff like this, from another of her posts:

The Next Financial Crisis Is Not Far Away
Posted on July 2, 2017 by Gail Tverberg

"Recently, a Spanish group called “Ecologists in Action” asked me to give them a presentation on what kind of financial crisis we should expect. They wanted to know when it would be and how it would take place.

The answer I had for the group is that we should expect financial collapse quite soon–perhaps as soon as the next few months."

https://ourfiniteworld.com/2017/07/02/t ... -far-away/

Still, makes me nervous, non-the-less.

tikunetih wrote:There is a distinct "doomer" undercurrent to the original article, such that the consequences of almost everything are interpreted as being (highly) negative, with virtually no scope for positive consequences. Essentially, assuming that humans won't respond to feedback, adapt to changing circumstances or innovate, despite all the lessons of human history...

I dont believe we can really innovate out of a crisis in primary energy supply. Physics wins every time! There is also diminishing returns on efficiency: to optimise a process to be energy efficient may compromise its economic viability.

tikunetih wrote:

We don’t know what is ahead, but we know that the low points on Figure 9 were very bad times, even though energy consumption in total was not contracting. <snip> The decade of the 1990s was the decade of the collapse of the central government of the Soviet Union.

Well, we certainly wouldn't want a return to the 1990s would we? Booming economies, booming asset markets, grim days indeed!

In the West the economy may have been booming. The Soviet Union collapsed into a parlous state which still blights lives today. There is a strong argument that this was a collapse in which the proximate cause was financial difficulties caused by declining oil production in the context of low oil prices and political dysfunction.

https://ourfiniteworld.com/2011/08/08/f ... for-today/

joyofbrext8889
I dont believe we can really innovate out of a crisis in primary energy supply. Physics wins every time! There is also diminishing returns on efficiency: to optimise a process to be energy efficient may compromise its economic viability.

Yes, Physics wins every time.

Efficiency of an internal combustion engine: 25-30%.

Efficiency of an electric motor 80%.

Limit of fossil fuel: Unknowable but likely finite and seen as a green house gas source

Limit of renewables: Countless human lifetimes going forwards, effect on climate: little.

Ability to store hydro carbons: large, but smelly and away from populations

Ability to store electricity: large and environmentally safe so can be everywhere.

Ability to run the world on renewable power: Many times more energy available than we need.

Regards,

Colour me sceptical. This 100% renewable stuff is 100% fantasy. Believe in the magic renewable future all you want, doesn’t make the dream any more real. Let’s start with the obvious:

No way of making steel for 7 billion folks without fossil fuels.

No way of making cement for 7 billion folks without fossil fuels.

No way of making petrochemical products for 7 billion folks without fossil fuel.

No way of producing food for 7 billion folks without fossil fuel.

No way of doing solar PV for 7 billion folks without fossil fuel input.

No way of doing wind turbines for 7 billion folks without fossil fuel input.

No way of running global cargo shipping for 7 billion people without fossil fuel.

No way of running aviation for 7 billion people without fossil fuel.

No way of performing primary resource extraction such as mining or well boring for 7 billion people without fossil fuel.

No way of paving roads for 7 billion people without fossil fuel.

Please, I want to believe in fairies too. If you are able to demonstrate a solution to any of these problems that might scale up with zero fossil input then I am all ears.

Otherwise our renewable future is so much baloney.

tikunetih wrote:There is a distinct "doomer" undercurrent to the original article, such that the consequences of almost everything are interpreted as being (highly) negative, with virtually no scope for positive consequences. Essentially, assuming that humans won't respond to feedback, adapt to changing circumstances or innovate, despite all the lessons of human history...

It's funny the OP should mention gold, as the narrative style of the article linked to - that of an expert in their field making bold (overconfident) & usually foreboding forecasts : using their detailed knowledge to rationalise why they're right without much analysis of all the areas where they might well be wrong - is catnip to goldbugs.

I particularly liked this bit:

We don’t know what is ahead, but we know that the low points on Figure 9 were very bad times, even though energy consumption in total was not contracting. <snip> The decade of the 1990s was the decade of the collapse of the central government of the Soviet Union.

Well, we certainly wouldn't want a return to the 1990s would we? Booming economies, booming asset markets, grim days indeed!

Sensible investors will likely read this article and file it away along with everything else they read, keeping a flexible, generalist's view about what the future holds, as it's pretty much guaranteed to never match the forecasts of niche experts.

I agree, thought the article was largely nonsense. Would be enjoyed by doomsters and oilies though. Remember peak oil in the noughties? Energy and waste issues would be largely resolved if the US made their transport as efficient as everyone else's and curbed their ridiculous consumption habit. The US is the real problem and should start by taking a good hard look at itself. How can we in the "West" lecture China when we have failed to control our own impulses?

As for the risk of another financial collapse... gimme a break!

GS

GoSeigen wrote:.....
I agree, thought the article was largely nonsense. Would be enjoyed by doomsters and oilies though. Remember peak oil in the noughties? ....

GS

Yes.

I can go back even further - The Club of Rome in 1972!

'The Limits to Growth - a report on resource depletion.

Not saying that it isn't an issue to be considered, but.....

odysseus2000 wrote:

joyofbrext8889
I dont believe we can really innovate out of a crisis in primary energy supply. Physics wins every time! There is also diminishing returns on efficiency: to optimise a process to be energy efficient may compromise its economic viability.

Yes, Physics wins every time.

Efficiency of an internal combustion engine: 25-30%.

Efficiency of an electric motor 80%.

Mm... But not really comparable on that basis, surely?

An ICE is a physical originator of mechanical power - extracting mechanical power from thermal energy. An electric motor is simply a power converter, converting already existing (electrical) power into mechanical power. But the energy behind the electrical power being converted has to come from somewhere in the first place.

An ICE is a physical originator of mechanical power - extracting mechanical power from thermal energy. An electric motor is simply a power converter, converting already existing (electrical) power into mechanical power. But the energy behind the electrical power being converted has to come from somewhere in the first place.

Yes, BUT, there are relatively untapped sources of energy that can be used to generate electrical power. Solar being the obvious one, and China has been installing solar generation faster than anyone else, and is increasing. That was only 2% of Chinese electricity in 2017, but that is growing fast, and will almost certainly continue to do so - meaning it's likely to start becoming a significant source of Chinese energy over the next decade.

JoyofBrex8889 wrote:Colour me sceptical. This 100% renewable stuff is 100% fantasy. Believe in the magic renewable future all you want, doesn’t make the dream any more real. Let’s start with the obvious:

No way of making steel for 7 billion folks without fossil fuels.

No way of making cement for 7 billion folks without fossil fuels.

No way of making petrochemical products for 7 billion folks without fossil fuel.

No way of producing food for 7 billion folks without fossil fuel.

No way of doing solar PV for 7 billion folks without fossil fuel input.

No way of doing wind turbines for 7 billion folks without fossil fuel input.

No way of running global cargo shipping for 7 billion people without fossil fuel.

No way of running aviation for 7 billion people without fossil fuel.

No way of performing primary resource extraction such as mining or well boring for 7 billion people without fossil fuel.

No way of paving roads for 7 billion people without fossil fuel.

Please, I want to believe in fairies too. If you are able to demonstrate a solution to any of these problems that might scale up with zero fossil input then I am all ears.

Otherwise our renewable future is so much baloney.

Calciulate how much land area you need with solar to power all of China and you will find it is small, ditto the US & everywhere else. The calculation was done on the Musk Endeavours board a while back. Folk completely miss how much energy falls on the earth from the sun, it is vastly greater than all known fossil fuel deposits.

We have all grown up using fossil fuel just as our ancestors grew up using horses, but it is now becoming obsolete for many things. Only long (> 1000 miles) duration flight & intercontinental cargo need fossil fuels & there are now railways to bring goods from China. The entire energy infra structure of the world is changing supported by the physics & the better economics of renewables.

Regards,

XFool wrote:

odysseus2000 wrote:

joyofbrext8889
I dont believe we can really innovate out of a crisis in primary energy supply. Physics wins every time! There is also diminishing returns on efficiency: to optimise a process to be energy efficient may compromise its economic viability.

Yes, Physics wins every time.

Efficiency of an internal combustion engine: 25-30%.

Efficiency of an electric motor 80%.

Mm... But not really comparable on that basis, surely?

An ICE is a physical originator of mechanical power - extracting mechanical power from thermal energy. An electric motor is simply a power converter, converting already existing (electrical) power into mechanical power. But the energy behind the electrical power being converted has to come from somewhere in the first place.

Energy is energy & there is far more potential renewable energy than humans need by large factors. With storage & electric motors one can do almost all the things we have used hydrocarbons for. They are just a store of energy that we can tap albeit inefficiently. For every gallon of petrol about 65%+ of the energy is lost & can't be used to power a engine.

Regards,

odysseus2000 wrote:Energy is energy & there is far more potential renewable energy than humans need by large factors. With storage & electric motors one can do almost all the things we have used hydrocarbons for. They are just a store of energy that we can tap albeit inefficiently. For every gallon of petrol about 65%+ of the energy is lost & can't be used to power a engine.

OK. Not myself attempting to debate renewable energy vs fossil fuel etc. as I don't have enough knowledge or understanding of the field. Just trying to pick up on a matter that is for some people a cause of misunderstanding - that electrical generators are a source of power.

In principle there is nothing to stop an electric motor approaching to near 100% efficiency in its job of power conversion. In practice of course it can't, nothing is perfect. However, a thermal machine such as an ICE cannot, even in principle exceed some tens of percent efficiency while operating between two practical working temperatures to extract energy from heat - that's a law of nature!

So, IMO, there isn't much obvious point in simply comparing the 'efficiency' of an ICE and an electric motor in this way. That's all.

Regards.

I did a study in the 1980s about alternative fuels for glass making, it being predicted at that time that oil and gas would run out in a few decades, as we were then at "Peak oil". Sounds familiar?.

Two scenarios, using coal gasification with modern gasifiers and using wood from a renewable forest. The latter involved a 100km square tract of eucalyptus in Brazil cropped on a seven year rotating cycle. Obviously the glass factory would be located adjacent to the forest and modern gasification would be used. The fast growing eucalyptus lends itself to this cycle. All you need is a suitable area.

One way to do something sustainably.

TJH