Yesterday, as BP tried to weasel its way out of its promised billion payout, another Gulf rig caught fire, this time thankfully without any associated loss of life.

Vermillion 380-A, owned and operated by Mariner Energy reportedly caught fire as workers were painting and water-blasting.  There are two main points that are illustrated well by this latest accident in the Gulf:

First, the idea that small operators are somehow less dangerous than large ones is just plain wrong.  This platform was processing close to 3,000 barrels a day until yesterday.  Thats a lot of oil had it begun to spill into the Gulf.

Second, these kind of accidents, and the risk of larger disasters, are the norm for the industry.  According to the Wall St. Journal, there were 381 fires on board offshore facilities in the Gulf from 2007 to 2009.

Oil Change

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In the first step, wet algal biomass contained 80 percent moisture and was reacted with subcritical water to hydrolyze intracellular lipids, conglomerate cells into an easily filterable solid that retained the lipids and produced a sterile, nutrient-rich aqueous phase. In the second step, the wet, fatty acid-rich solids underwent supercritical transesterification with ethanol to produce fatty acid ethyl esters (FAEEs). The team used Chlorella vulgaris algae, which contained 53.3 percent lipid content.

The research yielded promising results, Savage added, but the project is anticipated to be refined and optimized in order for to demonstrate greater economic and environmental feasibility of the process on a larger scale.

The researchers say more work will need to be done to improve the yields and cut down on inputs.

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The left side of the chart shows the different sources of energy and the amounts produced. Following the flow of energy from left to right, the pink boxes show where the energy is consumed (electrical generation, residential, commercial, industrial and transportation) while the shades of gray show the amount of energy lost or rejected – often through heat loss. The information is based on DOE/EIA-0384(2009), August 2010. Distributed electricity represents only retail electricity sales and does not include self-generation. EIA reports flows for non-thermal resources (i.e., hydro, wind and solar) in BTU-equivalent values by assuming a typical fossil fuel plant “heat rate.” End use efficiency is estimated as 80% for the residential, commercial and industrial sectors, and as 25% for the transportation sector.

Renewable Energy in the U.S. at 5:39 AM

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Smartplanet.com says Hybrid Turbines Inc.’s SmartGen system will use biogas, biodiesel and natural gas to run a back-up power generation system fuel the back-up power system that will operate during the 70 percent of time when the winds don’t get the job done:

This would of course depend on the patent-pending design working and being installed throughout the country’s wind farms. According to Hybrid Turbines, the SmartGen system can be retrofitted for existing turbines, scaled between 3 and 100 kilowatts (possibly higher), and integrated into new turbine designs.

Estimates are that wind power generation capacity would increase by 25 GW, the equivalent of 25 1,000 MW nuclear power plants

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Politicians and the public would realise that the ecological and social cost of offshore drilling was becoming unacceptable, the thinking went.

If you morph the lessons of the Deepwater disaster as well as the Exxon Valdez, it is that the risks of deepwater drilling are huge. Everyone though realises that we were lucky in the Gulf, where the warm waters are more able to breakdown the oil compared to the cold waters of the Arctic.

In the the Arctic some 5 million barrels of oil spilt would have been a complete ecological catastrophe as the oil would take years – decades even – to break down.

But the lessons of Deepwater has not been learnt. The oil industry is just carrying on regardless.  Going ever deeper, going ever further into the Arctic.

Take this week’s news about Cairn Energy that says it has found natural gas off Greenland’s western coast.

In the words of respected energy correspondent , Guy Chazan, from the Wall Street Journal, the find is “bolstering hopes that the area could become one of the world’s last significant untapped hydrocarbon provinces.”

Although the find is currently too small to be commercially viable, Chief Executive Bill Gammell said he was pleased with the results. “We’re encouraged because we’ve established there are hydrocarbons in a basin that nobody has ever drilled before that’s the size of the North Sea.”

A new North Sea in the Arctic.

As Guy Chazan argues: “Some of the world’s largest energy companies have gravitated to Greenland’s iceberg-strewn waters in recent years, lured by estimates of its enormous resource potential. The U.S. Geological Survey says the area could hold around 50 billion barrels of oil and gas, more than the total proven reserves of Libya.”

But after Deepwater, when we have witnessed what can go badly wrong when the industry pushes the boundaries of new frontiers, should the industry be there at all?

A Greenpeace protest ship has arrived in the area to protest against Cairn’s, but a Danish warship prevented the protest vessel from entering an exclusion zone around the rig.

Greenpeace argues that “companies like Cairn Energy who chase the last drops of oil at any environmental cost are pushing us in the wrong direction. It’s time to go beyond oil.”

The commentators said Deepwater was a game changer, but the game hasn’t changed at all.

Its as if Deepwater never happened. Because the game is still all about oil..

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Wisconsin Governor Jim Doyle announced 5,000 in support for Ace Ethanol to expand its operations in Stanley and retain 40 jobs. “My Administration’s top priority continues to be helping Wisconsin businesses create jobs and giving workers the opportunities to get those jobs,” Governor Doyle said in a press release. “I’m proud to support Ace Ethanol in its efforts to produce clean energy that creates good jobs for our residents.”

The funds are part of the federal American Recovery and Reinvestment Act and are being distributed through the Wisconsin State Energy Program. They will be used for the installation of heat exchange equipment to reduce waste heat and make the facility more efficient.

Ace Ethanol is a founding member of the Wisconsin Bio Industry Alliance (WBIA). “This is great news for Ace Ethanol and Wisconsin’s ethanol industry as a whole,” said Joshua Morby, Executive Director of the WBIA. “The ethanol industry has contributed over a billion dollars to our state economy, and it is vitally important that we keep this industry growing and thriving in our state.”

Completed in June 2002, the Ace facility was the first large-scale ethanol plant in Wisconsin, and currently produces over 40 million gallons of the fuel every year. Ace also produces wet and dry distillers grain with solubles and carbon dioxide as co-products of the ethanol production process.

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CNN Money reports a new report from the Lawrence Livermore National Laboratory (LLNL) says the 5 percent drop in American energy usage during 2009 is the largest annual drop on record. But wind energy production alone rose more than one-third during the same period:

Despite the drop in overall energy use, [A.J. Simon, an energy analyst at LLNL] said the study also showed a substantial increase in alternative sources of energy, including gains in solar, hydro and wind power.

Under the 2009 economic recovery act, the Department of Energy has offered generous tax breaks and grants to help fund the development of wind energy. President Obama has set a target of doubling the country’s renewable energy capacity by 2012.

The article says the increase of wind power has directly helped reduce the amount of coal used in this country.

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The audience included leaders from governmental, industrial, academic, and non-governmental (NGO) sectors. They were very concerned about climate change, but not very aware of, or concerned about, the issue of resource limits.

In my talk, I pointed out where the “standard” view of the economic response to peak oil goes wrong. People expect that if there is an oil shortage, prices will rise and then substitutes, or additional supply, or technological solutions will be found. But what if these solutions take decades or even generations to implement? Oil from new fields is not instantly available; new biofuels do not scale up quickly; and technological innovations take decades to make a meaningful difference in the overall picture.

In the absence of a quick response of substitute supply or technical innovation, it seems to me that other responses come into play–ones that explain the recent financial distress we have been seeing. When oil prices rise but are not met with immediate solutions leading back to lower prices, consumers respond by reducing discretionary spending, or by defaulting on debt. Either of these responses tends to lead to recession, reduced oil demand, and a reduction in oil price. Eventually growth in demand (perhaps from China and India) can be expected to raise prices again, but again, new oil supply /new technology /new substitutes are likely to be delayed, so that higher prices are likely to give rise to reduced discretionary spending and debt defaults, and more recession.

Because of these impacts, the expectation for the future should be for oscillating prices, but not necessarily very oil high prices. Recession can be expected to improve, and then get worse again. If the expectation for the future is this type of economic situation, perhaps views regarding needed climate change policy should be revised to match the new economic reality.

Furthermore, because the world is a closed system, with limits, there is the possibility that world oil supplies will actually decline in not too many years. The likelihood of this decline gives rise to a greater sense of urgency of the need to reduce oil use–one cannot just wait and hope that future technological innovation will fix the situation. It may be that lifestyle changes will also be needed, reflecting a lower standard of living. Climate policies may need to be rethought to match the way a world with limits can really be expected to act.

Dr. Richard Gibbs, one of the symposium co-chairs, kicked off the symposium by talking about the fact that the world is a closed system, and we are now dealing with pollution and excess greenhouse gases as symptoms of the limits inherent in a closed system. My job was to try to extend this idea–to explain that oil is subject to limits as well, and to point out that, in fact, we seem to be reaching some of these limits.

My name is Gail Tverberg. I am an editor for The Oil Drum website–a website that talks about “Energy and Our Future”. My background is as an actuary.

Dick Gibbs started the symposium talking about the world being a closed system, because it reaches limits in many ways. I would like to talk to you today about one of the limits we are now reaching–namely oil supply limits.

When most people think about oil supply, it seems to me that they expect a scenario, pretty much like what I show on Slide 2. Inadequate oil supply will lead to high oil prices. High oil prices will lead to various kinds of remedies, including more oil extraction, new substitutes, new technology, and other innovation. One might expect that pretty quickly, an acceptable oil price would return, and the economy would return to economic growth.

The problem with this scenario, as I will show in the next few charts, is that there is a fairly long time lag between high oil prices and new supply or substitutes.

Let’s look at crude oil supplies, and oil prices. In this slide I show world oil production and OPEC oil production, along with world oil prices. It is pretty clear from this chart that as oil prices rose between 2004 and mid-2008, there was very little increase in world crude oil supply. In fact, it was pretty much flat.

OPEC doesn’t seem to have raised its supply very much in response to the higher oil prices either, except a million barrels a day or so at the end. One might suspect that their statements about high spare capacity overstates the extent that they can really ramp up supplies, when oil prices are tight. But they are willing to drop production when oil prices decline, and the portion of their oil supply that is most expensive to produce becomes less profitable.

This is a similar slide, showing crude oil production of OECD (that is, developed countries in total) and the US.

OECD crude oil production, in spite of the rising prices, is trending down over the period, with some leveling in the last year.

US oil production is fairly flat (except for when hurricanes hit) but if you look closely, you can see that US production has increased a bit in 2009 and 2010. This is at least, in part, in response to higher oil prices several years earlier, because it takes several years to add sufficient wells to create an increase in oil supply. The recent increase in US crude oil production reflects increased oil production in the deepwater Gulf of Mexico and in the Bakken shale oil (North Dakota).

Wind energy is the tiny dark green line that is visible only in recent years, just above the line I call “wood and ethanol” on the chart. (It is called “biomass” in the EIA report it comes from.) The “wood and ethanol” line does not rise very quickly either.

Other ways of measuring the rise in wind energy would give a little more favorable picture. For example, the percentage would be a little higher, if we looked only at electricity, or the amount of energy were measured differently from the way the EIA does it. But no matter how one measures it, it is not coming close to replacing fossil fuels.

The thick black line at the top is US energy consumption, and the difference between US consumption and US production is imports. One can see from the chart that imports were dropping in 2008 and 2009, during the recession. Oil represents the US’s major type of energy imports, so the decline in imports to a significant extent reflects a decline in oil imports. During this period, world crude oil production was flat, and demand from developing nations was increasing, so a decline in oil imports should not be a surprise.

This slide shows my view of two different responses to high oil prices, if high oil prices are not immediately remedied by substitutes, or more oil production, or new technology. One outcome is debt defaults, as people and businesses find it more difficult to pay back loans, when they are faced with paying higher oil and other energy costs (since costs tend to rise together). This leads to a cutback in lending, as banks’ capital is eroded, and banks realize it is not prudent to make loans to marginal buyers. With less loans available for buying new cars, and financing new business opportunities, businesses lay off workers, and recession ensues.

Another common response to high oil prices is reduced discretionary spending. If oil prices (and thus food prices, and perhaps home heating prices) are also higher, people respond by cutting back where they can. They may go out to restaurants less, or go on fewer vacations. This reduced spending on discretionary items also has a recessionary impact.

If we step back and look at the situation, we have high oil prices, leading to recession and to low oil prices.

Eventually, one might expect that demand will rise, perhaps from the developing world, and put upward pressure on prices again. Again, there is little immediate response in terms of additional supply or alternatives, so one sees a pattern of oscillating prices developing.

Oscillating prices are a problem, because they do not give clear price signals. They aren’t high enough to encourage substitutes on a large scale.

One thing that is particularly confusing to consumers is that looking at inventories and other conventional measures of oil, the situation appears to be an over-supply of oil. That is in fact true–there is an over-supply of expensive oil, oil that many customers cannot really afford. What is really needed is a bigger supply of inexpensive oil.

There are really two problems.

One is that the world is a closed system–what some of us would call a finite system. There is still considerable oil left, but the oil that is left is more and more expensive (in $$ and resources) to extract, because we remove the “easy oil” first. At this point, and price threshold where recession occurs seems to be about a barrel. This limit is related to low Energy Return on Energy Invested (EROEI). While it would be nice if prices could keep rising indefinitely, we know that at some point, it will take more than a barrel of oil to produce a barrel of oil, and at that point, it will not make sense to continue to extract oil, even if there still seems to be plenty available.

The amount of energy needed to produce a barrel of oil includes the energy of the infrastructure that needs to be in place (transportation for example) as well as the direct energy used in production. This need for infrastructure brings the EROEI requirement up to something like 3:1 or 5:1, rather than just 1:1. And it looks as though we are getting close to limits on both an EROEI and dollar basis–close enough that high prices cause recession rather than a quick shift to increased production; close enough that EROEI for oil from the tar sands seems to be in the 3:1 to 5:1 EROEI range already.

A likely outcome is that production of oil will at some point in the not too distant future, start to decline, rather than just stay flat, as it becomes more and more difficult to find oil that can be extracted at affordable prices and an adequate energy return.

The second problem is that energy transitions take decades, or longer. We first started using coal before 1800, but use did not scale up to a high level until 1910, over 100 years later. Natural gas use began by 1890, but it was not until 1970 that it reached 2.2% of world energy supply. Vaclav Smil, who has written over 50 science books, has written a recent book on this problem, called Energy Transitions: History, Requirements, and Prospects.

As oil production remains flat, and the amount of oil that the developed world is able to buy declines, it seems to me that we are likely to see more and more of the economic problems that we have experienced in the recent past. We can expect more and more business closures, more layoffs, and probably lower home prices.

Governments can be expected to act fairly differently, as their sources of revenue dry up. For example, road maintenance is likely to suffer, with more and more roads returning to gravel, and funding for higher education and research is likely to decline.

If there really is a significant reduction in oil supply, it is quite possible that new greenhouse gasses emitted may decline significantly, without any particular government action.

I don’t claim to be an expert in climate change policies, but it seems to me that policies will need to be rethought, in the light of a very different future economic scenario than most have considered, and also in light of the possibility of declining oil supplies available to the US. If the decline in oil availability is a current, and near future concern, then the need for change takes on a much greater sense of urgency, than if one is simply trying to meet a 2050 climate goal.

It seems to me that the usual approaches may not work as well, and more pragmatic approaches may be needed. It is not at all clear than we will be able to maintain our current standard of living, as oil supplies decline.

Natural gas and coal supplies can be expected to decline at some point as well. There are a great many connections between different types of fossil fuel uses, so a decline in oil production may bring about a decline in natural gas and coal production as well, although we cannot know this for certain at this time. There are a number of interconnections that may cause extraction of various fuel types to move together. For example, if the credit system is impaired because of debt defaults caused by indirect impacts of declining oil supply, this could lead to less demand for all kinds of fuels, as occurred during the recent recession. There are other connections as well. For example, oil is used to transport coal to its destination, and to mine metals used in making coal and natural gas extraction equipment.

Almost everyone agrees that comprehensive energy legislation, including cap and trade, is not likely to be passed this year in the US. Instead, we see the US, like many other countries, is badly in need of additional tax revenue, and the oil and gas industry appears to be a likely candidate for more taxes (since it is easier to tax large, unpopular businesses, than to tax voters). So a likely outcome seems to be higher taxes on the oil and gas industry. But we need to think about this. The connection that everyone hopes for–lower production leading to higher prices–doesn’t seem to be a very robust one. Instead, by raising taxes, we may produce more price oscillation, and more recession. This outcome is not likely to help alternatives at all, and will likely make our balance of payments situation worse.

So we really need to think through climate change policy approaches carefully, in light of the closed system of that we are working in.

The Oil Drum – Discussions about Energy and Our Future

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Slide 2: Poem

This poem by W.B. Yeats inspired my talk’s title.

Suppose I were to take your new born infant, and by some magic transport her back through 16,000 years to a cave in what is now Lascaux in south-western France. Let’s swap your baby with a baby born to a Neolithic mother. There is no reason to believe that in time both children would not turn out to be well-adjusted, unremarkable members of their respective communities. Genetically they are the same. What is clearly different is the world in which they would have to make their way.

What shaped our modern world is our hunter gatherer minds, and the growth in complexity and size of human society and infrastructure facilitated by access to increasing energetic and material resources. We could say that civilisation is the emergent feature of these interactions.

This lecture will focus on the complexity part, but the other elements are always close by.

In the universe as a whole, entropy, or disorder is increasing. Yet life, our civilisation, the things and institutions we create are ordered. We create islands of low entropy out of the tendency to universal disorder.

To see this we can look at the simple example of a Bernard cell. The molecules in the liquid between the hot and cold plate are moving randomly in all directions. Any one part of the liquid is the same as any other part. As we increase the temperature gradient, we arrive at a point where suddenly there appears lots of convection cells. This phase transition corresponds to the emergence of lots of order and structure within the system.

While the cells themselves are low entropy, we see in the graph that the transition corresponds to a big increase in the rate at which heat is dissipated. Heat is the most disordered (high entropy) form of energy. The dissipation is into the environment outside the experiment. In general locally ordered structures enhance the flow of general disorder and so such structures are thermodynamically stable- as long as there is a continuous flow of free energy through the system. If we reduce the flow of free energy that allows us to maintain the gradient below the critical threshold, the order disappears.

Our civilisation expresses these thermodynamic realities. Far-from-equilibrium thermodynamics gives us a way to view the consequences of what reducing the flow of free energy that is required to build and maintain our society might mean in practice.

Eric Chaisson has, using simple thermodynamic relations, associated energy per unit time per unit mass with complexity. In this graph he has taken the overview of our ‘cosmic history’ as one of increasing complexity.

Complexity is not a goal of life, merely the result of increasing free energy stores being accessible. Complex humans share the universe with far far more less complex things.

It is a cliché, though true, to say that life has become more complex. We can see this in the products we produce. This figure shows the energy used per unit mass graphed against process rate of various manufacturing processes. The processes range from manufacturing processes used half a century ago, up to modern semi-conductor and nanotechnology manufacture. What we see is that we are making much more energy intensive products, of much smaller size. The most modern commercial processes are forming distinctive structures on the scale of only tens of atoms.

Let us take advanced semiconductors as our standard barer of complexity. They form the basis of our telecommunications and information processes, being as the basis of mobile phones and their network infrastructure; computers and their network infrastructure; they run our power grids and car electronics, medical equipment and games consoles.

A 32 MB DRAM chip would now be considered archaic, but we see that its 2grams require 1700g of resources. One expects that contemporary Very Large Scale Integration (VLSI) chips require vastly more resources.

Again, all of this reflects the thermodynamic reality that the cost for higher complexity on smaller and smaller scales must be paid in increasing energetic and material resources.

We can see complexity in the number and depth of interactions, numbers of products, the complexity of products, the number of institutions, and the number of specialised roles and their knowledge base.

The remarkable thing about our economy is that it works. Each day I buy bread. The person who sold me that bread need not know from whom the wheat was bought, who manufactured the mixer, or who provided export credit insurance for the bulk wheat shipment. The person who delivered the bread to the shop did not need to know who refined his diesel, who invented the polymer for his gasket, or if I personally have money to pay for bread. The steel company did not know that a small manufacturer of bread mixers would use its product, nor cared where its investment came from. The process required to simply give me tasty and affordable bread, required, depending on the system boundaries, thousands, millions, even hundreds of millions of people acting in a coherent manner. There was no master organiser, nor could there be, given the complexity of the process. From each of us playing our own small part, through the market and price system, the global economy emerges. The global economy, like the formation of birds in flight, is self-organised.

The number of products, their complexity; and the increased infrastructure required to manage elements of the increasingly complex world in which we live all require more complex supply- chains that are required to transform raw materials into products and services that criss-cross the globe. It is said that a car has about 15,000 components. If each of those components has on average 150 components (1%), and each of those 1.5 components, that makes over 3 million interactions- and we have not included staff, plants, production lines, IT and financial systems.
And as things and infrastructure wear out, that’s the laws of thermodynamics working again, these supply-chains are required not just to grow the global economy but to maintain it.

In a world of growing population with increased consumption demands, the tendency to complexify will remain a huge driver as new problems and challenges arise. Well it would, were it not for the ecological limits to growth.

As Joseph Tainter has so well demonstrated, societies are problem solving organisations, developing the easiest solutions first. That could be simple, e.g. the need to make bread; or it could be complex, e.g. putting in a renewable energy infrastructure.

As new solutions are introduced they co-adapt and co-evolve with what is already in place. Where they provide some new good or service we like, or provide some new efficiency they spread more quickly through our society.

However we see declining marginal returns in our investments in complexity. This can be seen across the board, for energy, metals, agricultural productivity etc.

It is something that society finds hard to understand. The more complex human, institutional, and infrastructural resources we throw at a problem, the more confirmed we are in our potency as problem solvers. But consider the cutting edge of physics in 1897, the discovery of the electron by J.J. Thompson. It was performed on a laboratory bench, and would have required the services of a master glass blower and a couple of other crafts people. Now consider the Large Hadron Collider, the cutting edge of modern physics which requires over 20 km of tunnels under the French-Swiss border; 72 twenty ton magnets, and thousands of highly trained direct staff- to find (possibly) another particle, the Higgs boson.

We see a similar story in drug discovery. Alexander Flemming discovered penicillin in the 1920’s for a cost in the order of tens of thousands of euros, with a huge return to human welfare. Now we spend hundreds of millions on making minor improvements to drugs that have minimal benefits for humanity.

We can look at an analogy of these processes. This figure shows us at a moment, represented by the red triangle, faced with choices in the x-y plane. The problem, say putting in renewable energy infrastructure, has an energy & resource cost represented by the height of the mountain, represented by the cross here.

What we tend to concentrate upon is this cost. However we must also consider the ground beneath our feet-this is the implied infrastructure which includes all those things we take for granted but are essential to the project’s completion. These might include the availability of a financial market; that supply-chains work; that contracts can be enforced; that transport systems work, really the list is endless. In total, our implied infrastructure is the accumulation of all the complex organisation and infrastructure up to this point in time, throughout global society, without which, the project cannot succeed.

While most concentrate upon the trip to the summit, the real problem is that the ground is about to crumble beneath our feet.

Let’s zoom in on a little piece of a supply-chain and see the essential components. One of the defining features is that we can change suppliers for economic or other reasons, we can substitute S for S’. This means we can loose suppliers in a supply-chain, and the market system allows us to find new ones easily. This can allow us to manage risk. Indeed the system is so efficient that many companies hold virtually no stock and can partake of the efficiencies provided by just-in-time delivery.

If we zoom out and look over the whole supply-chain networks we see that some nodes are essential to the functioning of the whole. Virtually all financial transactions are mediated by banks. If there were a systemic collapse in the banking system, the supply-chain would collapse also as there is no direct substitute available. We saw such a shudder in the system in late 2008 after Lehman Brothers collapsed. Banks would not issue the letters of credit required for international trade as they did not trust counter-party banks. One reason for the 90% drop in the Baltic Dry Shipping Index was due to a temporary freezing of such financing. In the parlance of network theory, the banking system is a hub.

On the basis of our previous discussion, and intuitively it makes sense I think to say:

More complex things have longer and deeper supply-chains.

They have more substitutable components- i.e. there are very few alternative suppliers of advanced integrated circuits, compared to the number of suppliers of say, plastic moulding, or cardbord boxes.

They are more resource and implied infrastructure dependent.

This is a nice map showing the origin of the base materials required for the manufacture of a mobile phone. For each element this is only the beginning of a long journey that will directly involve thousands of enterprises before the phone ever appears in your hand.

The implied infrastructure would be the networks of international trade and finance that facilitates this; and the availability of complex mining technologies.

What has evolved is that we have put these most complex components and infrastructures at the heart of our most critical systems.

To see this process we imagine that suddenly all our IT systems, introduced over the last 15 years, stopped working. The result would not be to return us to where we were just before their introduction. Many people would become uncontactable, records would disappear, business and commerce would be in crisis. Our banking system, airline transport, stock markets would fail. The electric grid would go down. For most, work would become difficult or impossible. The little cash we had would be spent, but could not be replaced as banking systems would fail. We could not buy food and there would be reduced food within the economy. The ability of state to manage the crisis would be greatly impaired. Within days we could see major social unrest. How is it that a series of developments only 15 years old, could if suddenly removed cause such chaos, after all we were fine without it? Well we have seen some of the answers in how complex systems evolve.

The continuous functioning of our supply-chains (particularly in the case of food where just-in-time delivery and globalised sourcing means modern cities could be days away from a food crisis); financial and banking system; telecommunications; energy systems, and transport have become increasingly integrated and co-dependent. A serious failure in one could cause a cascading failure in the others.

What has helped make such systems viable is that they are being cross-subsidised throughout the whole economy. The resource required to build and maintain such complex infrastructure require that we buy games consoles, send superfluous text messages, listen to iPods, and watch YouTube.

The short lifetime and rapid turnover of mobile phones, computers, servers, and network infrastructure are often presented as an upgrade to new technologies and services. This may be so, however a level of throughput is required to keep the system functional. Internally, because more complex structures will tend to fail more rapidly than less complex ones (for thermodynamic reasons, though built-in obsolescence may also play a part). Externally, because of the economies of scale require that such complex and resource intensive components must be produced continuously in quantity.

In this sense we are upgrading just to sustain the basic functionality of the systems upon which we have grown increasingly reliant.

Here are a couple of definitions of collapse. It’s what we’ll talk about now. It is I hope clear from what we have said that complexity and energy flows are inextricably linked, and that a draw-down in such flows are most likely to lead to abrupt changes rather than continuous changes in complexity.

Here is a familiar Gaussian plot of oil production, we have also an account for declining EROEI, giving us the net energy available to society. Ignore the actual figures, this is just for illustrative purposes.

As we’ll see in a moment talking about a money budget in such circumstances is likely to be very problematic, but we could talk of an energy budget for a country. Each of those sections represent energy spent on health-care, general administration, running businesses, schools, and investment, for example.

Well the first thing is as net energy declined, each sector would be under increasing pressure to maintain basic operations. Investing in conventional or renewable energy, which requires a large up-front energy payment for a small annual return over many years would be increasingly difficult. Firstly because there would be less investable energy. Secondly, our social discount rate is likely to increase, that is society is likely to become more short-term. When offered the choice between saving basic employment or health services now verses a slow long term energy payback, it is more likely to choose the former, especially as the stakes rise.

Both of these represent positive feedbacks on declining net energy, and thus on decreasing complexity.

However the above scenario seems far too optimistic, we are unlikely to have such well defined net energy available. There are other positive feedback that will make the decline process far more uncertain as we will now see.

If energy flows into the economy decline, growth cannot continue, this reflects thermodynamic realities and embedded dynamic constraints.

Debt is a call on future wealth. We can borrow because the principle plus interest has a better chance of being paid back in a growing economy. In a contracting economy paying back the principle will take a growing share of the total economy, never mind the interest.

The sovereign, corporate, and personal debt already accumulated, and governments’ attempts to run deficit financing to bring us out of recession are likely to fail as rising energy and food prices choke off growth, and lower discretionary income make servicing debt more and more difficult. Eventually, lenders will realise they are throwing good money after bad, or rather bad after worse.

If countries cannot borrow, they cannot run deficits. If you need to import energy, food, or components for vital infrastructure or services, you will need to export something of similar value. This will mean companies integrated into parts of supply-chains may have to drop out.

Investment will become close to impossible, even energy investments will occur in a much more risky environment.

Our debt based fiat money system is effectively primed for deflation. The pool of money in the economy is maintained by new borrowing as old debt is repaid. A drop off in new debt issuance, and a reluctance to spend (a reduction in the velocity of money), will mean reduced economic activity on top of the energy constraints. Some governments will no doubt discover the short-term benefits of printing money, only to further loose confidence in their currency.

Valuing a currency will become fraught with difficulties, the dollar will no doubt crash, but against what?

We could say that money becomes opaque. We lose confidence in its valuation in space, that’s trade; and time, that’s investment.

Finally, sticking with our thermodynamic theme, we might remember that entropy and information bare a close relationship, a history going back to Claude Shannon in the 1950’s. The collapse of structures and institutions represents a loss of information about how our world works. The increase in uncertainty will be fundamentally stochastic rather than epistemic.

What I mean by creeping collapse is the loss of individual companies and failing elements of supply-chains. This is in contrast to the failure of a hub, such as the global banking system.

In this list we see some of the constraints we mentioned before, plus some new ones. What is important is that they are interacting together and often re-enforcing each other.

The combined effect will be to reduce more and more the number of companies in the supply-chain, and make the exchanges (physical, monetary etc.) more and more difficult.

By reducing the number of substitutes in the chain, whole chains will grind to a halt for want of critical inputs, further reducing the viability of other members of the chain. In a way just like that old rhyme that encapsulates ‘for want of a nail, the war was lost’.

Economies of scale are the familiar benefits of a globalising world. They mean that not only can goods or services be produced cheaper, meaning greater sales volumes; but also a freed up discretionary income that can be spent on other goods and services.

In the energy/ economic environment I have been discussing, this process goes into reverse. The rising prices of goods (because of the energy cost, supply-chain and money risk reasons), and reduced discretionary income reduces the number of goods sold. This further increases the price at which the good must be sold, further reducing sales.

The rising cost of critical goods reduces discretionary income in the wider economy, reducing broader economies of scale, feeding back into the rising cost of goods. So drawing upon our earlier example, the rising cost of mobile phones which are now quite essential, mean less is spent on games consoles. This further raises the cost of advanced semi-conductor components for the phone.

We might also consider the dependent economy, by which I mean the network infrastructure for mobile phones, or the internet infrastructure for computers. As fewer users buy phones/ computers, or use them less, the cost of maintaining the network rises per user. In addition the cost of maintaining the infrastructure itself is likely to rise for the reasons already mentioned.

Thus we have yet more positive feedbacks driving our civilisation to lower and lower levels of complexity. Eventually networks, or major network functions will become unviable and effectively have to turn-off.

We might ask how fast such a collapse occurs. We are reminded that most of our critical infrastructure has the most complex supply-chains, is the most resource intensive, is the most dependent upon cross-subsidisation, is the most expensive, and has components with short lifetimes.

The bathtub graph shown describes the probability of failure over time of many components of our infrastructure. We could consider such infrastructure to be scattered with multiple time constants. The systems functionality is set by the shortest critical time constant. That many of our key components (computers, servers, routers etc.) have lifetimes of only a few years does not look good.

In an early slide I discussed how interconnected our infrastructure is. Here a problem is that that even if one sector is maintaining its functionality, it is vulnerable to cascading failures transmitted from other sectors that cannot maintain upkeep of functions.

We saw that beside creeping supply-chain collapse, there is the collapse associated with a hub, in our case we mentioned a systemic failure of the banks.

Well, here is a scenario that seems likely. In essence, at some point in the future, over some period, the debt/ bond market will switch from being ultimately confident about the return to economic growth, to accepting that uncertainty and depression can only continue. As we know, markets tend to change their views over short-time periods.

An acknowledgement of this view will dry up the debt market, crash other markets, and will effectively mean that almost all debt cannot be repaid (or can, with worthless money). This means that all banks will be seen as insolvent.

The speed of such a transition could be in the order of months (baring in mind the propagation speed of the recent financial crisis). A collapse of bank intermediation services would effectively collapse our global and national supply-chains, in addition to instigating a money crisis.

The consequences would be unprecedented, including the prospect of a food crisis in many advanced economies. This would be the detonation point when the world finally absorbs the depth of its ecological overshoot.

The rate of collapse will be dependent upon the the speed of our critical systems- the operational speed of our financial markets, the speed of our supply-chains, and the maintenance rates required for our infrastructure.

In time a collapse will be seen as a series of jumps to lower levels of complexity occurring over decades. This will be set against a background of creeping failures in many of the systems we take for granted. There may be periods of stability or even slight recovery, but the downward trend will be unstoppable.

We are not in the middle of a financial crisis, but at the edge of civilisational one.

What we urgently need to develop now are emergency measures to soften the impact of such a crisis. The omens are not good, but we do have the ability to make better choices rather than worse ones.

Thank you!

The Oil Drum – Discussions about Energy and Our Future

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3. Carbon Capture and Storage: Economic Costs Revisited

The B20 blend is provided through STAR Energy, the FS companies of Iowa and Renewable Energy Group, Ames, Iowa. The FS System is the official fuel sponsor of the show through its donation of the FS premium diesel fuel, Dieselex Gold. Dieselex Gold contains multi-functional additive chemistry that makes it the perfect partner for biodiesel blends. It is comprised of 8 components that contribute to engine performance, efficiency and protection.

“Continuing the use of the B20 blend at the Farm Progress Show demonstrates the commitment of the agriculture industry to renewable, sustainable fuels. B20 use at the Farm Progress show reinforces that it can be used on Iowa farms in diesel equipment,” said Jason Stauffer, Energy Management Specialist/ Area Sales Manager for Star Energy.

REG officials also point out that biodiesel adds value to American farm products, to market cattle, .25 to every bushel of soybeans and adding additional value to ethanol through inedible corn oil use.

Domestic Fuel

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1. Farm Bureau Supports Extending Biofuel Tax Incentives
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3. Is Glycerin from Biodiesel Kosher?