Non-Peaking Energy Demand

SUBHEAD: The non-peaking of energy demand is part of our energy ponzi scheme. By Steve Ludlum on 27 January 2011 in Economic Undertow - (http://economic-undertow.blogspot.com/2011/01/looking-at-non-peaking-of-demand.html) Image above: "Modernity is stoking a hot furnace stranded on an ice flow." Mashup by Juan Wilson. Here are some 'first principles' of Economic Undertow:

The 'First Law' of economics is that with all surpluses, management costs rise faster and become greater than the value of the surplus itself. Inflation (and deflation) in the general sense is the inverse value relationship between commerce and the money that leverages it. The road crude oil travels between worthless and worthless is very short.

Oil is worthless in the ground waiting to be pumped away and worthless after it is burned, where its residues loll about in the atmosphere poisoning everything alive. Oil has only days to gain its fleeting value made upon the promise of still more oil pumped out of the ground a few days hence. Its value is continuously 'born anew' days or weeks into an always uncertain future. Much of what billions of humanoids have done over the past 100 years has been to rationalize in the best meaning of that word the value- birthing process. By means of massive public and private works we attempt to convince ourselves that falling forward as we have done for decades is as perpetual and timeless as the Earth itself. Finance requires demand be brought forward into the present. The institutional demands of the throughput mechanism requires the past be brought forward continuously at the same time. Stasis rules: just as we never escape the dead hand of future's onrushing debts we can never put aside the shadowy, twilight illusions of a comforting past. Today's energy use is conceptually identical to 'beneficial' energy use in 1945: making this so gives the energy regime an inexpensive validity it could not otherwise afford. What oil buys with its evanescent value is nothing: a spider's web has more permanence than that 'drive around town'. What endures is oceans filled with unmeasurable masses of ground up plastic and fractious weather. Our stupendous works are monuments to- and enablers of pointless waste. This is the energy ponzi scheme. It can only function with ongoing 'inputs': both the fuel in hand along with the promise of more fuel in the future. At the same time the (increasing) management costs must be amortized. Flows are 'rented' from the future: without the guarantee of future flows at a price low enough to service flows in hand the ponzi breaks down. The people who are leading the unrest in the oil-producing regions are university educated youths who face a non-future. A world economy that orbits around the car-waste of resources is facing the cost consequences of that waste. University educations are implied aggregate claims against resources. The cost the claims represent is now greater than the value of the available resources: this is self-evident. If there were more resources at hand than claims outstanding there would be no disturbances! As resource cost rises the number of payable claims shrinks by way of supply and demand. Right now the claims of expanding modernity are greater than what the shrinking resource base can support. Those holding the claims realize this and are now making a 'run' on the 'modernity bank'. Modernity is in existential conflict with itself. University educations and political liberalism are means to access both resources and the tools to waste them. Attempts to exercise this access push resource costs higher because they render inefficient the flows of both energy and the funds necessary to effect the flows. Modernity cannot conjure resources out of thin air. All modernity can do is pretend to increase throughput claims on resources. It's been able to do this so far because there has been up to now a surplus of energy available at artificially low cost. Highly touted oil and gas production technologies do not create new reserves which have existed for tens of millions of years. Technologies can only extract existing reserves faster at a greater cost. Deciding which reserves are 'recoverable' or not is semantics. The suggestion that reserves are being expanded in some way or another is a fraud. The way to manage the energy surplus costs has been to ration energy demand by policy. Policy doesn't have to work too hard as both commercial and non-commercial economies are not native demand creation engines. Modern commercial economies swap machines for labor (demand) which is then arbitraged against itself. The energy cost of machines is presumed less than the energy costs of human labor. For labor to become energy demand it must first obtain credit, either from its bosses or from the bosses' agents, the banks. Because of inefficiencies in credit throughput the bosses suggest that the demand for energy has 'peaked'. This is even as they suggest the reason for the demand peak is 'greater efficiency'! Efficiency becomes the Establishment's version of Schrodinger's cat, dead and alive at the same time. The non commercial economies do not create many energy-dependent jobs. Large percentages of the populations are unemployed. Policy renders these unfortunates more or less permanently unemployable. This leaves energy balances available for export in return for 'hard' currency. Al Jazeera flirts with making the connections between the endless and pointless Cairo traffic and the current troubles in that country. What is taking place in Egypt and elsewhere is the conflicting claims of humans and their tools which both have large and growing energy appetites. The energy costs of the tools is reaching the level that cannot support both tools and humans efficiently. Here's more on disturbances in Egypt: Video above: Al Jazeera covers Egyptian protests. From (http://www.youtube.com/watch?v=IaxTGZtM3L0) Egypt is an American client as is Saudi Arabia and was Tunisia. The purpose of the relationship is to support the American Way of guzzling waste and a bankrupt business economy that is dependent upon that waste. Fuel prices as 'loss leader' of US commerce treats citizens of producing countries as externalities. The region's governments have had an interest in 'rationing' modernity bought and paid for by returns on Americans' resource waste. The energy demands of modernity come not only from America but also Europe, now China and other developing countries as well as the clients' own citizens. Contrary to petroleum industry apologists, demand is far from peaking. Rather, it has been rationed and the rationing process is in the process of breaking down. The cost implications of this are profound. Energy prices must either rise in consuming nations to pay for 'modernity rationing' at higher cost levels in energy- producing countries or the resulting throughput disruptions caused by newly- militant demand will make fuel unavailable. Modernists in Cairo, Tunis and elsewhere demand their right to waste the same way as the Communist Chinese. That the demand is blatant and paid for with violence bankrupts the notion of 'peak demand'. The demand is everywhere, just confused about how to express itself. There is no organic reason why the Middle East could not have industrialized the same as China, Japan or S. Korea. The obstacles were policy choices by governments which diverted a small fraction of oil revenues to buy off what would otherwise be restive populations. Politicians calculated bribes and foreign controversies were cheaper than the structural changes needed to support commercial economies. Politicians also could not plan a way to merge their anti-modern cultures to the hegemonic American-style anti-culture modernity. The Middle Eastern country with the greatest potential for commercial growth -- Iraq -- was destroyed by wars first with its neighbors then with the US. All were alarmed by Iraqi leadership's stumbling attempts toward modernity which were perceived as existentially threatening. Industrial growth in the Middle East would have increased domestic demand for fuel as it has in China:

Image above: Chart by Jonathan Callahan and Mazama Science. From (http://www.theoildrum.com/node/6276#comment-597084). Producer countries are now confounded by their modernity-rationing policies. On one hand, their OECD patrons require limits on modernity so as to maintain their monopoly access to cheap(er) energy. The depletion-driven rise in energy costs makes it too expensive for producers to keep the lid on their restive populations. There really is no way out of the consumption trap: countries seeking to deliver more modernity to their citizens -- after regime changes -- will see increased fuel demand driving energy costs higher still. This makes modernity even more expensive in a self-amplifying vicious cycle. Costs increase faster than the means to meet them which requires large and expensive structural changes to increase employment and aggregate labor returns. Even the hyper- modern US cannot grasp the fundamental structural reforms required to regain full employment. It cannot do so because the only structural reforms that can pay for themselves are fundamentally anti- modern. The historical verdict is the Luddites were right. It's not the romanticism of their human rights' demands but simple cost-benefit analysis. Modernity has reached the point where it cannot produce promised benefits to any sector other than its energy supply. Meanwhile, there is risk piled on risk: the attempt to change the modernity-rationing process is as risky as a new rationing process would be by itself. Upheaval in Egypt, Oman and Yemen threatens oil supply routes. Disruption increases prices without allowing any greater access to modernity or allowing transition out of it. The process of changing the process has a risk of compounding failure and descent into non-productive chaos. In all directions are feedback loops that trends energy costs higher. Modernity is a stoking hot furnace stranded on an ice flow. One outcome of disruption is a crude price spike caused by massively increased 'Panic' demand along with funds appearing into foreign exchange circulation at once. Some of this panic is being seen already in food markets; its appearance in crude would be reflected in even greater food price increases in yet another self-amplifying cycle. The instant surge in f/X liquidity in fuel markets would cause the same thing excess liquidity caused in 2008: a spike-n-crash 'Volatility Event'. The 'greater' oil market from wellhead to end user's business is in the process of becoming a liquidity/currency trap. Oil prices increase at the expense of profits elsewhere in the energy ambit (circuit) reaching back toward the energy throughput mechanism. Throughput loses the ability to support its own costs. This is fatal ... loss of throughput renders large swaths of modernity pretenders largely penniless. This has happened over and over again beginning in 1973 and the OPEC oil embargo. Every drop of oil pumped is destroyed wastefully at the end of oil's very short road. All money spent on it is also wasted just as it has been wasted since the beginning of the oil age. This is so even as the 'money' still exists post-petroleum as excess claims on nothing. All the newly materializing demand worldwide represents more claims that are impossible to satisfy. The endgame of 'falling forward' is falling on your face. Short of reaching that painful point the reasonable one is to reconcile costs and demand and do so over a meaningful period. This means twenty to fifty years of sharply decreasing energy use until the non-returning wasteful activities are permanently stripped out of economies. It may be too late for that as frustrated citizens throw away their outmoded governments in their frenzy to waste like Americans while they still have the chance. Good grief! .