Cheap oil, financial markets and renewable energy

Worth bringing forward: MB’s comment on Coals Ports, Stranded Assets and the Massey Bridge.  

MB makes a connection often overlooked: the rise in oil prices and the collapse of the over-leveraged US financial system in 2007-08, based on unrealistic, if not fraudulent, housing prices and homeowners’ ability to pay.  When commuting costs surged, particularly for ex-urban developments, it was a factor that undermined the confidence that is the basis for any liquid market.  The housing-mortgage market across the country simultaneously collapsed (something thought improbable if not impossible), along with the value of derivatives and the credit default swaps that had ostensibly insured them.  But it started with oil prices.

He also makes a good point on peak oil – not much heard about now in a world awash with shale products.  But the analogy seems evident. 

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From what I’ve read, mostly based on the analyses of production data and rock strata by geologists, the world production of cheap conventional oil peaked in 2005 which precipitated a price surge, which in turn encouraged the exploitation of unconventional oil resources (tar sands, deep sea, fracked shale).

It was a Gold Rush fueled by investment bank hype. Enter the US shale plays rife with over-leveraged companies, and the price was driven to almost $150 a barrel, which was the straw that broke the toxic paper camel’s back and precipitated the 2008-09 recession and a succession of bailouts.

The thing about fracking shale is that it is an expensive process, and companies have to drill more and more, faster and faster, just to keep production steady in the face of extraordinary decline rates. Some wells decline as high as 90% after only a year. That’s just the nature of wringing drops of oil and puffs of gas from solid rock. Added to this is the indebtedness of the companies who need to keep drilling and selling even at today’s loss leader prices (which are still 350% higher than in the 90s) just to make the loan payments. All this drilling in the US, coupled with lower demand for oil in China created an oversupply in the US, thus the “lower” prices of today. All Saudi Arabia did was ignore the situation and keep their faucets open.

Geologically speaking, the Day of Reckoning when all five US shale plays taper off very dramatically due to their inherent steep decline rates will be somewhere around 2020. The world will then likely face an increasing shortage and leaps in the price never seen before. This is why transit and renewable energy are so important. If anything they will add some stability to a volatile economy that bounces between the floor and ceiling of oil prices beyond which recessions occur.

Regarding coal, it too is nearing a world peak in production. The highest quality stuff is already gone. Metallurgical coal is necessary for the production of high strength steel, but thermal coal is a useless, low quality, filthy energy source that should be banned immediately all over the planet. Why Ports Canada has agreed to allow the Metro to be the primary coal transiting facility for the US when several other ports in the Pacific Northwest rejected it is beyond logic.

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For a perspective on what the next stage of energy might look like, you may wish to subscribe to David Roberts’ new column in Vox.  (He was previously at Grist.)  Roberts first column:

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A solar future isn’t just likely — it’s inevitable

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… insofar as one can feel confident about far-future predictions, I feel pretty good about this one.

Here it is: solar photovoltaic (PV) power is eventually going to dominate global energy. The question is not if, but when. Maybe it will happen radically faster than anyone expects — say, by 2050. Or maybe it won’t be until the year 3000, or later. But it’ll happen.

The main reason is pretty simple: solar PV is different from every other source of electricity, in ways that make it uniquely well-suited to 21st-century needs. (Among those needs I count abundance, resilience, and sustainability.) …

It will be a long, fraught process. Any number of things could make a mockery of my prediction. Nuclear fusion or (just as likely) Tony Stark’s arc reactor could render the conversation moot. A meteor could hit. Humanity could decide to abandon Earth for other planets. Whatever.

But if energy keeps evolving roughly along the paths that are visible now, the unique properties of solar PV will eventually propel it to dominance. We will find that in energy, as in so many other human systems, distributed power works better, to more people’s advantage, than the concentrated kind.