Carbon Chaos : Economic Stagnation
End of the Trendline for Growth : Start of a Major Security Panic
by Jo Abbess
21st May 2008
I stopped reading the Financial Times before I was 21, sick to the core with its completely falsifiable theories on the operation of Economy and Trade, continually stunned by the misinterpretation of natural resource exploitation as a corporate right, and the mantra that cheap labour was good.
I started to read the Financial Times again in 2003, to try to follow the emerging markets in Renewable Energy. There are still times when I put the pink pages down in disgust.
Yet there are days when my visceral relationship with this newspaper is more jubliant. Today, I have to cheer. Well, two cheers, anyway, not the full three.
The Leader : “The Oil Conundrum” “The economy will adjust. If only we knew when and how : When oil was $10 a barrel, the idea that the stuff was running out seemed demented…It is not possible to make the case that global crude oil production has nowhere to go but down…The question is whether prices will eventually fall because of a substantial expansion of oil supply, a switch to alternative fuels, or a collapse in energy demand…Yet the flood of oil has not been forthcoming…The gloomiest explanation is that all the big fields have been discovered and most are in decline…While the world waits and waits…oil prices will only fall if we burn less oil…”
This is probably the moment that the Financial Times recognises the real possibility of Peak Oil.
I don’t know what’s taken them so long (I do, actually). I mean, Chevron has been on about it in large full-page, full-colour advertisements for over a year.
And major opinion-formers have locked their jaws into position on the Media to keep up the message : there is a finite supply of Brent and West Texas Intermediate, and there will come a point where demand broaches supply as the crude gush plateaus and starts to decline.
Getting past the point of denial is just the first step down a long, hard road. There are several, very obvious, quite possibly very dangerous outcomes to Peak Oil becoming generally accepted. The responses to Peak Oil could be highly chaotic, and risky for many people around the world.
Let’s look at just a few.
There is a genuine possiblity of rapid inflation in all elemental sectors due to price overloading coming out of the predictable “scarcity” value of hydrocarbons.
Large percentages of agriculture, manufacturing, infrastructure, and quite almost all of transport in the developed world are dependent on petroleum by-products.
If rapid inflation is allowed in the price of hydrocarbon fuels, then the staging value of every product in all these sectors will rise, with more weight being put on the final cost than at the moment, as businesses try to future-protect their profit margins.
This is the scramble up the banks of the river in flood.
The sensible way to stop speculation and high gradients in pricing is to quit grabbing for the biscuits on the tray at the children’s party. One biscuit at a time. One at a time.
This is rationing, and will cause immediate capping of market growth. Some may squabble and say the market will correct itself. But they must admit that the volume, the flow of the central products that drive the economies cannot increase, so it will never correct.
In many countries of the world, rationing is already in operation for things such as water, food and fuel. This measure needs to be applied to everything energy-wise, everywhere in the world.
I believe that Economies need to be kept as stable as possible – sufficiently stable to permit continuing trade and provision of goods and services.
A market environment where prices are not highly volatile – an “operation window” that allows for gradual adjustment to new resource conditions along whole trading chains.
Already, some actors have seemed to capitalise on the scarcity situation and rising base prices, and have passed on more cost that they need to. Some regulatory measures have already been implemented on prices, particularly of food, around the world.
The Oil Giants have to be propped up at the moment, as many funding streams are invested in petroleum, including Pensions, Government Bonds and so on.
There are very few actors in the supply of hydrocarbon fuels, so they act effectively as a cartel, and levelling this accusation could restrict untoward profit-taking on their part, just like the domestic energy companies have been outed as a cartel today in the UK.
If profit-making on the part of the Energy companies and the oil-producing countries can be controlled, then it will be possible to stabilise the Economies and protect us from Social Collapse due to high inflation.
RE-NATIONALISATION OF HYDROCARBON WEALTH
The idea goes like this : so, Mexico produces X barrels of oil a day, and it exports from that, using the intermediaries of the Oil Giants.
But, Mexico’s Economy has bubbled, and although it is only using Y barrels of oil a day, this figure is approaching X, and it can be seen that clearly one day, it will be X.
When will it choose to be more monetarily efficient and close down its contracts with the international Oil Giant companies, and start direct internal oil distribution ?
Buying oil at home is going to be cheaper for most Mexicans than buying from the Oil Giants. The “foreign expertise” will be sent packing. Sovereign control will be asserted.
And if Mexico plays protectionist games, will other countries refuse to trade other products with Mexico ?
Where does this story end ? With the collapse of various markets of food, fuel, and manufactured goods. Nobody benefits.
Iraqi oil production isn’t going too well, what with the in-fighting in the country. No amount of American Surge is going to rectify this, so transnational oil corporates can just stop licking their lips.
In fact, if Iraqi oil production stays as poor as it is now, it will not matter that its reserves are now figured to be the national highest in the world. If it’s not coming out of the ground and into a refinery, it can’t help international supply.
What if Iraq gets repeated elsewhere ? Not necessarily literally in the form of an incursion to correct some perceived regime error.
What happens if other oil-producing nations start to break down, maybe as a direct consequence of Climate Change, or an unstable international Economy ?
The Middle Eastern countries, where most of the remaining oil reserves are in the world, are also prone to the exacerbated air temperatures and drought of recent years.
The Middle East will be running out of drinking water faster than oil. Then what of native agriculture ? What of local labour ? Who can stand to live in 50 degree C heat for several months with no access to air conditioning ? Will national energy supplies be restricted ?
FALLING RESERVE FIGURES : BIGGER HONESTY
Panic could well set in if honesty is employed as a tactic to get the Americans off the backs of the Saudis.
The Americans beg for more oil. The Saudis say they can do a little, but not much. Then the Americans come back asking for more.
“Look at your reserve figures”, they say, “you’re good to supply.”
But, honesty will come out of all of this : the Saudis want to keep a hold of their precious oil, for future use and for future gain. So they will begin to reduce the imaginary figures on their reserves. I’m sure of it.
But this could produce a good deal of panic, as the truth settles in and makes its nest in your mind. So, actually, the Saudis haven’t got as much crude as they said they had. So, Peak Oil has been with us for months in fact, maybe years.
RATIONING THE FUTURE
If there is a limited supply of any product, there must be shares in that product – rations or allowances – whatever you want to call them.
If not, then this risks general collapse of many different supply chains to a greater or less degree. What follows will be not so much “demand destruction” as “demand puncture”.
I believe that we need to avoid breakdowns in trading circuits and market sectors.
I think the way to do that is to move over to using Carbon as the underlying currency.
The financial price of Carbon should be forced to become relatively stable, pegged in order to stabilise the economics.
The supply of Carbon will needs become the value marker, as its flow needs to be regulated.
If the price of Carbon is held relatively stable, it will give us a chance to invest in Alternative Energy technologies, including Energy Efficiency-producing processes, Renewable Energy Technologies and Energy Wastage Reduction systems.
If the price of Carbon is allowed to rocket, everything will destabilise.
I overheard several people in my office discussing oil prices today, making the links between food and fuel and food and fertiliser.
The problems of today are not a result of over-population, as there is still enough food produced to feed the world. But if the costs of petrochemical-based fertiliser is going to rise exponentially, then real hunger will come.
And, even if the Carbon Price is pegged to stabilise Trade, and Carbon is Rationed, there is a serious risk of famine anyway. Fertiliser will be rationed, but harvests will continue to be damaged by Climate Change, with its poor and different rainfalls, flooding, warm nights and drought.
What we need is to curb Carbon growth by rationing, to stabilise the Economies as Carbon declines.
And then we need to apply Contraction and Convergence to protect the Climate and save Civilisation.
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