Gail Tverberg: Why There's No Economically Sustainable Price For Oil Anymore
Actuary Gail Tverberg returns to provide an update on where we are in the global energy story. Her outlook is not rosy: she doesn't see a path for society to transition to an affordable, plentiful substitute to petroleum as a transportation fuel. The physics as well as the funding do not pencil out, at least with today's known technologies.
Without such a solution in hand, the world finds itself now mired in a scenario where there really is no long-term workable range for the price of oil. It's either "too high" and demand suffers, or "too low" and producers can't afford to extract it. The acceptable middle ground has disappeared:
When on the rising side of the Hubbert curve, everybody has good wage level and everybody can feed themselves. You can build new oil wells and everything works out fine. But what happens as you get past the 50% mark is that you no longer have enough oil coming out for the economy to keep growing. It starts going down. And what happens then is that the economy doesn’t function in the same way. You start getting the prices to spike as you try to get higher-cost oil out. And this is what we saw in the 2007-2008 period.
The price of oil spikes and you get recession. Then the price of oil comes back down. But wages don't recover and you get the very low price problem that we have right now. So it doesn’t work right. You can’t keep getting the same amount of oil out, essentially because the wages of the people don’t stay up high enough in order to afford the output of the economy.
At this point, it has gotten bad enough that there is no price that works. The price that producers need is higher than what the market will bear.
If we go to a place like Saudi Arabia, you'd say: They can get it out of the ground for $20 a barrel. But then when you look at it, you discover that they really need a much higher price if you include in all of the taxes and all of the funding they need to keep social order, import lots of wheat and the many other things that their economy needs, and build a desalination plant. So they really can’t get along on $20 a barrel. They learned how they can get along on $100 or $120 a barrel, but they can’t get along on $50 a barrel -- even in Saudi Arabia.
So you end up with a situation where there isn’t any kind price that really will work.
Click the play button below to listen to Chris' interview with Gail Tverberg (46m:06s).
Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson. It is October 17, 2016. Now, the big news for oil last year was its collapse in price, which destroyed a huge amount of necessary capital investment in the oil sector. Now, here is what I said during the intro to a podcast with Gail Tverberg back in January of 2015 – so that is a little more than a year and a half ago: “As I look at my trading screen right here on the 12th of January 2015 I see WTIC crude oil falling another 4.8% in the day and trading at less than $46 a barrel. These prices are damaging to oil exploration companies bottom lines today and tomorrow’s hope for production, and they are destabilizing to an increasing number of oil exporting nations.” Well listen, obviously the destabilization happened. Obviously, we have a lot more data now about the destruction of not just the oil exploration company’s bottom lines, but also their investments that were not made. Listen, energy is everything. The world has no legitimate plan B for liquid fuels at this point. Not one that I have seen at any rate. And no, electric cars, I am sorry to say, are not coming online fast enough to make a real difference – yet. But even when they do, we will discover that there is a big, complicated, messy, dirty world behind the receptacle into which we plug our nifty, green vehicles.
And more frighteningly, the world’s population is eating fossil fuels. Not directly, of course. Nobody is crunching down a piece of coal for breakfast this minute, but just one tiny step removed. Every calorie of food in the west has 10 or even 20 calories of fossil fuels silently embedded within them. So thinking about all this is difficult, emotionally challenging even. It is really something that most people and most governments would rather avoid. But look, keeping our heads in the sand about all this – that is not an option either.
To discuss all of this today we are welcoming back to the show Gail Tverberg to discuss this, and not a minute too soon. Now you all know Gail. She is a professional actuary. She applies her risk assessment expertise to finite world issues, oil depletion, natural gas depletion, water shortages and climate change. And for years Gail has offered some of the most informed analysis on the global net energy predicament and her posts first at the oil drum where I ran across her, but more recently on her very popular blog OurFiniteWorld.com; and there you will find both really intelligent articles and super intelligent comments. She has got a great thing going there. Gail, thank you so much for joining us again.
Gail Tverberg: I’m glad to be here.
Chris Martenson: Well, let’s start – look so much is happening in the world. We can easily get into the details, but before we do I want to back up, widen the view out first – if you were at an energy conference, say one focused on making a transition to alternative energy what would be some of the biggest fallacies or false beliefs or misconceptions that you would untangle if you could?
Gail Tverberg: Well, it is hard to know where to start. Part of the issue is that we need a transportation fuel. We need a liquid transportation fuel that operates in our existing vehicles. The biofuels are just not cutting it. There is no way that we can transfer to electric in a reasonable timeframe. This is one of the misconceptions that is out there. It is just – it is much too big of a problem. You got your caterpillar tractors and all of these things. It is not just our private passenger autos, and there is even the issue of how you keep making your roads and things like that. I mean, we use the asphalt for making the roads themselves, as well as for operating the machines that make the roads. So, all of it gets tied very much together. There is that issue, but there is another piece of it, too, is that intermittent energy isn’t at all the same as the other intermittent electricity; especially is not at all the same as regular electricity. In fact, as I have talked to some people that are are more involved in it from actually working with the transmission lines, it really – just trying to scale it up becomes just an unreasonable problem very quickly. The whole idea that we can push the problem over to those transmission people and they can magically wave a magic wand and make it happen isn’t going to happen. It is too much of a physics problem. You can’t get wind and solar to all kind of work together and somehow or other support the grid without spending many, many, many times the amount of energy that the wind and solar makes to fix your grid to make it work. So, the whole thing just falls apart when you look at it that way. But at best, the wind and solar are just a tiny supplement to what we have right now. It might slightly reduce our oil and gas usage, but not very much.
Chris Martenson: Right. The only credible plan I have seen, and by credible I mean it was within an order of magnitude correct, it is not a full plan but it was a thought piece put out by the director of China’s national grid which manages all of the electrical grid for China, proposing to the world that the world, if we really want it to move to alternative energies no one country could do it so they propose the world to do it and they would populate the Arctic with wind towers, because the wind is always blowing up there and we would populate deserts, desert regions with solar and we would then spend around $50 trillion globally to doing this to get this infrastructure in and then get the pipes necessary the grid pipes to bring that electricity to the markets. $50 trillion would be roughly two thirds of the entire world’s economic output that is a massive number. It is several orders of magnitude larger than everything else I’ve seen proposed. I don’t even know if it is off by a factor of two or three. I don’t know, but it was the only thing I saw that was remotely close to something I would say we could start with that as an idea.
Gail Tverberg: Right. Then of course this stuff would be subject to all kinds of hurricanes and all kinds of natural forces, so you constantly need to be repairing it all and replacing it over time. There would be an ongoing cost to it, as well. There is an energy loss problem when you start trying to ship your electricity thousands of miles. So, you would have to really over produce in order to make it work that way. Then you start ending up with resource problems and trying to keep up this whole big grid. You would end up with some large share, well at least large relative to what we are currently using share of the population working on keeping up this grid and trying to make everything work, because it would be so hard $50 trillion we are talking wages of a lot of different people would be working on this stuff. So, they would not be manufacturing other things that we need. That would not be good for us.
Chris Martenson: Well, absolutely, and I want to get to that economic component in a minute. The first thing I want to start though here is this – look, I read all the headlines. I have such compassion for the people who just want this all to turn out well. I get it. You read the headlines “Fossils Fuels are Dead” or, you know, “The Alternative Energy Future is Right Around the Corner.” They are really based on belief. This illustrates it really well. I was following Charlie Hall’s work with Prieto where they actually calculated the energy returned on energy invested for Spain’s solar systems, right? Which are some of the largest in the world and they got great data collection so instead of calculating it with numbers sitting at a desk going well theoretically this all works they said well what is the real world experience? They came out with a very disappointing energy return on energy invested of 2.45 for the solar system, which is not enough as you were saying to deal with the long-term issues of both maintaining and then rebuilding this thing when it inevitably fails. What I loved is instead of calculating this stuff behind the desk they went out into the world and they extended their analysis to include and I’m quoting here, “road access to the plants, foundations, canalizations, perimeter fences, evacuation lines, rights of way, module washing, security and surveillance, transportation” sometimes as far away as China, “premature phase out or unamortized manufacturing and other equipment. Insurance, fairs, exhibitions, promotions or conferences on and on and on. I’ll stop there. That is literally a tiny fraction of all the other stuff they said is actually involved in installing and running something as simple – I am using this word carefully, as the solar installation.
Gail Tverberg: Right. I think if they had gone farther they would have found that there are even more things; if they were to scale this up there would be an exponential increase in the cost of trying to keep the grid going, for example. And then there is also this issue of trying to finance the whole thing. Suppose we had an extra $50 trillion of this infrastructure. Do you think we have this saved up, so that we don’t have to finance it all? Somehow or other we would – where are we going to add an extra $50 trillion of debt to our current level of debt? It is just not going to happen.
Chris Martenson: Indeed. This is the part that I think is the critical part that is really missing out. So technically it is all possible. But from a resource standpoint maybe not. Maybe there are some questions is there enough neodymium to make enough strong force magnets that are needed in wind towers? Is there enough silver to create all of these connections between the solar panels as they are manufactured? But it is the energy and economy component -- you have a very recent piece out – came out on October 11th – “Why Energy Prices are Ultimately Headed Lower – What the IMF Missed.” I want to get to why prices are headed lower. But first, the very first chart – this is why I love your work so much – the first chart right at the top is world GDP compared to energy consumption. So, for people listening, if you have GDP graphed up the Y axis and you have energy consumption graphed across the X axis, you get a straight line – one dot lays on top of the next. That has been true for many decades. The punch line being if you want to have a growing economy, you need to have growing energy use. Let’s start there. Is you know sometimes people say “oh, the energy intensity of the economy is going way down. We need very little energy now. We will just become more efficient. That is how we get to nirvana.” What do you say to that?
Gail Tverberg: Well, what I say to that is you really have to look at the world situation. I think what tends to happen is a leader or an economist from, you know, some developed country says oh we by ourselves can solve our energy problems. We will send all of our manufacturing to China, and we will only in the future do financial services and maybe a little medical care, and we will do a little bit here and there, but when you get to the world picture what you find is that the energy use correlates very highly with the growth in GDP. You have to have more energy to get the GDP to grow. What happens with these alternatives is that they don’t scale up well at all, and so what you end up with is if you could use these alternatives they would produce only just a tiny fraction of what we have right now. So, on that basis alone it becomes very hard to scale. I mean for instance if we think about wood, we would deforest the world if we tried to gear our economy to just using wood even though it is theoretically renewable. I know people argue that the wind and solar are scalable, but you have to have an extra $50 trillion to spend maybe they are.
What happens is that as a practical matter going to so called renewables would bring us to maybe you know 10% or, you know, some small percentage of our current level of energy use which would bring the whole thing way, way, way down and it would not allow us to keep our current systems operating. It would be a very, very big problem.
Chris Martenson: I totally agree. This is the important point, which is that we have to look at this globally because you are right a lot of the hey look we are way more energy independent than we used to be because we decoupled the GDP output from the energy use. But you are right. We are just offshoring the energy consumption to some other location and then not counting it. So a solar panel gets shipped into this country and we measured the cost of that, but not the energy it took to run that. Then we just say look we got all of this great economic benefit from a solar panel without measuring the energy input. So, you have to look at this on a global basis. On a global basis it couldn’t be more clear. We have many decades of data in front of this, which is economic expansion and oil consumption or energy consumption. Those few things, though, are they have a correlation coefficient of .99. They are awesome. They are really tightly linked. And of course this should be – see I am a biologist by training. My PhD is in a natural science. So, understanding how energy flows, in this case chemical energy or electrical – electron bond energy or food energy at the organismal level -- just understanding energy flows was something I was trained in. And of course, if you want to have a healthy creature, it has to have sufficient energy flows. And you had a piece in a recent article, which I thought was great. I get it, because I studied this. Maybe we can make this so other people get it as well, and it is the idea of the economy being a dissipative engine like I think the example you used is a hurricane is a dissipative engine. It is sitting there and taking the latent heat in the ocean and it does crazy, awesome, beautiful things with it and forms a tight eyewall and has all this beautiful organization, which is funded by energy and it is dissipating that energy. Eventually when it runs out of that energy – well what happens next?
Gail Tverberg: Well, if we look at a hurricane, you know when it goes over land what happens is that maybe it doesn’t fall flat when it gets over land, but it doesn’t take very many days or very many hours before it loses its force and it comes to an end. Even animals and plants and humans are considered dissipative structures of a somewhat similar form, and we take energy in and if you stop feeding us it doesn’t take very long before we no longer are alive. So, what happens is that without the energy the economy tends to collapse, contract and no longer become the same thing it was before.
Chris Martenson: And that is because it owes its complexity and order and structure and all of that to the energy that it is feeding on, right?
Gail Tverberg: Right, because we can build for instance the international companies with the energy we have. It allows those international companies to, you know, communicate with each other or to send their executives from country to country to send the various kinds of, oh, the raw materials they need from one place to another all of this requires energy. If you lose that kind of thing, then the big international organizations start to go, and you have a very different structure than what you had before.
Chris Martenson: A simpler structure, as it were. There was a great book by Eric Beinhocker called the origin of wealth, which I loved. It really changed me a lot and he has got this great piece in the beginning talking about how many stock keeping units askew – askew in a store would be one item on the shelf, but if that item is complex enough like a toaster oven even it has a number of sub skews in there, like, well, who made the plastic for the handle on this thing? Who made the glass and who made the heating element and all of that? And he noted that the world now has about 10 billion stock keeping units. 10 billion individual things that are measured, tracked, reduced and incorporated into our economy. And could that go to 20 billion? Sure. Here is the point. If and only if we can increase the energy because that complexity is driven by energy and we are seeing what is happening in Syria or other places where the energy is in decline. It is contracting and you know the social unrest and all of that are symptoms the withdrawal of the primary life force of any complex system, which is the energy that it gets to consume.
Gail Tverberg: Exactly.
Chris Martenson: So, let’s talk about this, because now we are at the heart of what I think is the most unappreciated, most important concept and I am struggling myself how to convey this. I can’t wait to get your view on this. Maybe I am making it too complex, but we went from wood to coal, right? Because coal is better. It is denser. You can do more things with it. It gets to a hotter temperature. It is just a better fuel. Still, it took 50, 60 years to get to about half of the energy mix being formed by coal. Then, we went to oil. Same reason – denser, better. You can do things with it you can’t do with coal. You can fly jets on it. It is amazing. Nuclear, decent. That was a nice sort of add on to that story, but now the world is saying oh we are just going to go from things like oil and coal, we are going to go to wind and solar which are more diffuse. They are a less dense energy source – tell us, well, what are some of the complexities that might arise there?
Gail Tverberg: First thing I would point out is everybody takes the story as far as you got it to the nuclear – the oil to nuclear. Then I think, you have to go back to – then we went back to adding more coal again because the price mix got too expensive for us. It was just too cost effective -- it was no longer cost effective to use the oil. And we use globalization to effectively raise coal production in China, India and some other parts of the world, and so that our coal percentage could go way back up again and help keep the costs down. I think we also brought hydroelectric up. And so, we had to work through these directions. We couldn’t just go in the way of more and more expensive energy. We had to find a way to balance it out to keep the cost down. Now when we talk about these more and more diffused energy sources, we have to get them channeled to the point where we really need them. I think what happens is a couple of things. One of them is that it is terribly expensive or at least very expensive just to put the solar panels or the wind turbines in everywhere, and then put in the transmission lines. What happens is even at that point they are not fully adjusted to what we need.
If I look at my energy consumption by month to year, it is very clear that in the United States the big energy consumption months are January and February. So this is the cold, dark time of the year. Now, we got to figure out how in the world are we going to suddenly fix this so that we can get this energy that we really need from the earlier of the year, use wind and solar, and somehow or other channel it to keep us warm when it is cold out. You know even if you put in batteries you can’t make it blast for six months. It is just kind of goofy. People just have not thought this through. Admittedly, you can put them in and you can say oh in the warm parts of the world we can make it so it is a little easier for people to have air conditioning. Oh, that is nice but that is not what we need to solve our problems.
Chris Martenson: So, let’s talk about how we do get to some of this. Certainly, obviously there are a lot of things we couldn’t do if we wanted to become more energy efficient. Let me pick on something easy. We have known for a long time if you just double the insulation of a house, over the life of that house the energy savings are extraordinary. Building codes still don’t require that in the US, you know, and I’m seeing houses go up right across the street and stick framed with woefully inadequate insulation. Given what we know and given the fact that the long-term carrying cost of that house will be vastly lower in a commercial building over its lifespan -- 70% of the cost. The lifecycle cost of that building is heating and cooling, and still you will find you know buildings made mostly of glass and other stupid things like that from an energy standpoint; beautifully architecturally and all of that. But from an energy standpoint we still don’t do that. And so, that is why I think what you do is so important. What I am trying to do is we need a different story around this. The story that we don’t have forever, and we don’t have infinite amounts of energy. What do you run up against when you try to share that set of ideas with people?
Gail Tverberg: Well, I guess a blank. Maybe that is the right answer.
Chris Martenson: Good answer. Good answer.
Gail Tverberg: People are they are busy working on C02 is their big concern and you know, okay, well by 2050 we would like to do something or other. It is not really – they don’t quite have the understanding that there is a problem now. The low oil prices are huge problem, and if you look at it it is really low oil, low coal, low natural gas prices and low prices on a lot of different kind of commodities. So, we have a real problem right here and now, and it is a low priced problem. It is really something that people aren’t realizing are a manifestation of what is wrong with our economy.
Chris Martenson: Well, connect that dot. That is counter intuitive to say that low oil prices are a signal of something that is wrong with our economy. How do you connect those dots?
Gail Tverberg: Well, it is kind of hard to explain, but our economy is a networked system and you have the workers play a double role and the workers, they receive wages, but then they also use those wages to buy things. And if the workers are getting a smaller and smaller share of the output of the economy in terms of wages, they have a harder and harder time buying things like houses and cars and these big items that really are what our economy grows with. Then it is the fact that there is not enough what we call demand that causes the problem. You know, it is basically the fact that the – the factory workers and the what I call non elite workers the people who have high school educations aren’t getting good enough wages that is causing the problem. And so – and also the fact that young people are spending so many years in college, and then after they get out of college and they are getting relatively low wage jobs when they get out, and they got this big debt as well and it all works out they can’t buy new houses. And they delay starting their families for the same reason. All of this cuts back on the demand and as a result the price drops lower. I guess the other side of the story is that the price of it – the cost of extracting oil and all of these other things has tended to go up, just because we extract the easiest to extract first, and that is the cheaper way to extract. And so we are not able to keep the prices up to the levels that they need to be. And it is the big problem – so we can get a problem -- the reason why our supply tends to get cut off is because the – at least in my view – is likely to be because the prices are too low, rather than too high.
Chris Martenson: Now, I want to get to that, because clearly these low prices are way below what is necessary for oil companies to successfully prosecute their investment decisions. Leaving aside the Wall Street Journal and Bloomberg keep talking about how shale operators have figured out how to make a lot of money at $40 a barrel. By the way, people, anybody listening, all you have to do is not read any more of those articles and wander over to the actual investment filings for these companies and you will discover they are bleeding at these prices. It is just extraordinary. At a wider level, you’ve seen the first investment decisions called FIDs of the major oil companies get real way back. Perhaps over a trillion dollars of investment not made since mid 2014. And so here we are without all of those investments being made such that in 2015 – 2014 and 15 those were collectively, each year was the worst for oil discovery since the 50s; you put them together back to back and we haven’t had a string that bad in a long time. Less than 3 billion barrels discovered during years when 30 billion barrels were burned. So, about a 10% replacement.
Gail, getting to that – that has to create a supply problem some day, doesn’t it?
Gail Tverberg: You would think so. It seems like it may not be very far away. I know natural gas supply is down this year in the United States, and coal supply is also down in the United States. We got all three of them down in the United States. Worldwide, I think coal supply is down and it may – well, we are getting more on a plateau with the oil. It may be down as well. So, we are going to start seeing a spike, but when we see a spike it will fall – what tends to happen when you get a spike in oil prices is it follows through to other prices as well, like food, and the result tends to be that recession because people find that they need to cut back on discretionary spending. You know, buying things that are optional because the – they have to cut back somewhere. And I know I was reading this morning quite a few restaurant chains are closing, because the young people, you know, in the whatever 18 to 35 year old range are not buying enough stuff at restaurants anymore. But, what you get is cutting back.
Chris Martenson: Certainly. Let’s talk about the floor/ceiling dynamic of this. You have a floor. You presented a number of demand destruction based events that would cause prices to fall. We have been seeing that worldwide. The world economy obviously limping along, not at its normal air quotes, which I think was abnormal, never to be repeated again longer story. But you know, growth rates of 4 and 5% on a real basis and 6 or 7 on a nominal basis not happening. So on the demand basis we can see this demand destruction and this leads to oversupply in the short term. It leads to lower prices, and this of course is destroying the companies that are there to produce oil, natural gas, coal. So we have been seeing some fall in their output, we have been seeing retracting investment. But we know that because of your wonderful chart that compares GDP to energy consumption that and consumption and production are the same thing. We don’t pull it out and store it for long so when we look at that we can just say that falling energy production has got to be associated with falling GDP. That is a bad thing. We have a very unstable financial system that either expands or collapses. It has a very awkward, very delicate in between moment in between those states.
But on the same side, if we flip to the other side, we get to the short fall and prices spike. Then that will be too high for the world that is indebted with hundreds of trillions of dollars of outright debt and even four or five times that amount of unfunded liabilities and other unstated liabilities off balance sheet. Four which is too low for the energy companies to actually survive and thrive in and then there is a price that is too high for the economy to operate in that to me is the – is the floor and the ceiling that I wish people at these energy conferences understood a little better because when the floor and the ceiling touch my view is that what is now possible is a fraction of what is possible in a prior time.
Gail Tverberg: Right. And I think we have gotten to the situation where the floor and the ceiling touch. You know, things it has gotten bad enough so that we don’t have – there is no price that works. You know, that the price that producers need is higher than what the market will bare. And in fact, if we go to a place like Saudi Arabia, you would say oh they can get it out of the ground for $20 a barrel or some low price, but then when you look at it you discover that they really need the much higher price if you include in all of the taxes and the need for all of the funding they have so they can keep social order and so they can import lots of wheat and many other things that the economy needs. and they can build a desalination plant. So, they really can’t get along on $20 a barrel. They learned how they can get along on $100 a barrel or $120 a barrel but they can’t get along on $50 a barrel even in Saudi Arabia.
So you end up with a situation where there isn’t any kind of a price that really will work when you consider the overall needs of these companies.
Chris Martenson: Yea, so that is a great point I still have the floor and the ceiling in my brain apart a little bit, but I think you are right. If we can say there is a price – obviously the prices that exist right now are not working for countries and large companies, energy producers and energy exporting nations. Too low. Obviously it has already killed Venezuela that is cooked and we are just waiting to write the post mortem on that. Saudi Arabia in the process of disintegrating it at this point. Russia seeming to do a little better with it all, possibly because they have still priced everything in rubles and the ruble fell, too. They had a little bit of for financial reasons lessening of the pressure of that valve. At the same time here is a price which we can clearly see is going to create immense demand destruction on the other side. The idea that those are almost the same number now, to me that has got to be – to me that is one of the most hair raising frightening moments because the only way we are going to build this next future whatever it is is with the energy we have got period. There is no other way for me to analyze this story. Of course it is much more complex because of the amount of debt that has been involved, people’s belief systems, the complexity involved all of that. How do we start to – listen doing nothing is not an option as I mentioned before. We have to do something. So what do we do here?
Gail Tverberg: Well, I have a hard time coming up with something. It is sort of like saying well we have looked at this and with the energy sources that we will be able to have with just the renewables and such things it is going to be equivalent to living on a 600 calorie a day diet. So, we would like you to figure out how you can nicely transition to a 600 calorie a day diet and I think you will look forward to this new view of life that you are able to take on as you change your diet. You are going well, I don’t think so. This just doesn’t work. You know, it is the same kind of thing you know. Well, what do you give up? Do you give up taking care of your electric transmission lines? Do you give up taking care of your oil and gas delivery lines? Do you give up taking care of your roads? All of this infrastructure stuff by itself would take the equivalent of your 600 calorie diet. And so you suddenly discover that all of the pieces that you depended on are the parts that so desperately need energy. So it is very, very hard to cut back or at least the way I look at it is.
Chris Martenson: Oh absolutely. I agree with that. It is a complex relationship. To perhaps tease this apart a little more illustrated in a recent post you said “The popular idea that we extract 50% of a resource before peak and 50% after peak will be found not to be true. Much of the second 50% will stay in the ground.” There is a lot of deep thinking embedded in that deceptively simple quote. Help us unpack that, would you?
Gail Tverberg: Yes. I think an awful lot of people listen to or looked at the work of Hubbard and said well what Hubbard has said is the absolutely gospel true story for all times and all places in all conditions and what we can expect is this nice Hubbard shaped curve so to speak. It goes up and it goes down sort of slowly. So this is what we should expect going forward and so oil supply will kind of continue like it has before. It will decline rather slowly going forward. Well, that is – you know that is true if you are talking about a particular well and there are new wells taking its place and the price of the oil and the new well is roughly the same as in the old well and everything is going along fine. Everybody has good wage level you know, everybody can feed themselves. You can build new oil wells and everything is working out fine. But what happens as you get past the 50% mark is that you no longer have enough oil coming out so that the economy can keep growing. It starts going down. And what happens then is that the economy doesn’t function the same way. You know you start getting the prices to spike as you try to get higher cost oil out. And this is what we saw like in the 2007, 2008 period.
When that happens, then the prices spike, you get recession, it comes back down. People these higher prices don’t come back through to wages and then you get the very low price problem that we have right now. So, it doesn’t work right. You can’t keep getting the oil out essentially, because the wages of the people don’t stay up high enough in order to afford the output of the economy.
Chris Martenson: Now, as I travel the world, Gail, and I go to all of these different countries, every capital city is the same. They are all the same. It doesn’t really matter which nation I am in or which continent I am on. They are all the same and they are all jammed with cars. I always make a point of looking at the cars to find out how many are internal combustion engines and how many are electric. Guess what? It is very hard to find electric cars. You see the very rare Tesla in some of the key metropolitan area and that is it. And so, you know I have this other idea which is that the world absolutely has to have oil in order to even keep functioning at all. Don’t you think that governments would nationalize and overspend even if it doesn’t make sense from an energy or a dollar standpoint to get those last drops of oil out?
Gail Tverberg: Well, I mean you start with Saudi Arabia. It has already nationalized its oil company and okay at this price the price is way too low. Now where would Saudi Arabia get the money from to subsidize its oil industry? It gets all of its money from the oil industry. It can subsidize it and we have got Russia out there and where would it subsidize its oil industry from? That is where it gets its taxes from. As you look around the world, that is the situation. Oil is a big source of taxes, but you are talking about say the United States, maybe. But you know how many people are going to vote for a politician who says well we have decided that our oil industry needs $120 a barrel oil and the price is only about 50. So, we would like to increase the price by that amount. We would like to subsidize our oil companies to that effect, and how many voters are going to vote for that, because that is going to come through to higher cost at the pump and it is going to come through well, I guess I’m not quite sure where they are going to get the subsidy from, otherwise.
Chris Martenson: We will just print it up.
Gail Tverberg: We will just print it up. Yea, right. I think that we are going to end up with some situations where you get them the falling dollar relative to the other currencies. And so then if you are getting the falling dollar, then you get the oil price to go back up again to some extent. But and this – all of this gets to be a big mess. I am not sure that – I don’t think the politicians would do it in the first place, but printing the dollars would also affect the relativity, so all of it gets to be complicated.
Chris Martenson: Yea, big moving pieces. I only slightly joked about the printing it up. I think we would try that because you know currently we have got another delusion out there which is look we can print tons and nothing bad happens. But again, that is not just storing potential energy for a future date. We will see how that works out.
But ultimately the dollar price doesn’t matter that is the hard part I find in this conversation. It doesn’t matter is it a penny a barrel, is it a million dollars a barrel. What really matters I the net energy that is available to flow through the system. What constructs we build around it and what we price money at and what we call that is interesting, necessary, complex to understand but ultimately irrelevant if we have falling net energy per capita we are going to discover that it is harder and harder for the average person to get by and that creates political pressure, social pressures all kinds of other things. That really when people say oh I remember in the 70s one person could earn the wage necessary to support a house even at minimum wage. Like yep. That is kind of where we hit our net energy per capita coming out of our own oil fields, and it has been kind of downhill every since. That is an explanatory and maybe even a predictive sort of an analysis that you can put on there that overlays quite nicely, but very few people still have that energy awareness of the role that it really actually plays, and everything is a little bit of a derivative form that even though it is an interacting derivative.
You know with that we are out of time. I just wanted to thank you so much for your time today and especially Gail, for your work in educating people about something most don’t really still want to be educated about, but boy, still as necessary as ever. I will direct people back to your website ourfiniteworld.com. Is there any other way people can track you or keep in touch with you, or maybe go see you at a conference?
Gail Tverberg: Well, I guess there is Twitter it is gailtheactuary all one word. I don’t have any upcoming conferences that are – well, the one that I know of that is upcoming is in Europe and I don’t think it is something that I would advertise right now. So, I think ourfiniteworld is probably the best place.
Chris Martenson: Well, great. Hopefully you would post there when you do have an upcoming conference so I would invite people to read the site, read the blog, see you if they can and we will have you back on at some point. I know this conversation is just starting for the world.
Gail Tverberg: Okay. Thanks for calling. Yes. Appreciate it. Bye.
Chris Martenson: My pleasure.