US Drought, Extreme Weather, High Food and Fuel Prices — How Fossil Fuel Dependence is Wrecking the US Economy

According to reports from the Wonkblog, the ongoing US drought knocked .2 percentage points off of US GDP growth during the second quarter. This figure is probably very conservative when you consider the massive impacts and total costs of this ongoing and expanding drought.

The historic drought has, so far, cost America more than 77 billion dollars, or about .5 percent of annual GDP. And with NASA, the WMO, and many other climate organizations now establishing a link between this year’s extreme drought and severe weather, the intransigent and carbon emitting fossil fuel companies, who continue to seek dominance for their dirty, dangerous, and depleting products, not mother nature, are primarily to blame.

If all this lost money were spent on job creation measures, it would support about three quarters of a million well-paying jobs. Such an investment would result in a big bump for US employment and overall prosperity. But that possibility is now gone as the money has been absorbed by damages.

Yet drought isn’t the only avenue through which fossil fuel related damage has come to the American economy. Other severe weather events have combined with the current drought to create the most extreme year for natural disasters ever in the US. This record year follows a series of increasingly damaging years since the 1980s. The damage just keeps happening year over year, even as it is increasing overall.

This year, total damage to the US economy due to weather disasters is currently well in excess of 100 billion dollars and the damage is still ongoing.

Moving on from extreme weather, we can shift to other harmful fossil fuel related impacts to the US economy. The first is the ever-growing cost of liquid fuels caused by a combination of growing demand and the depleting nature of a fossil resource. Overall, fuel costs have averaged higher than $90 dollars per barrel for 2012, the cost necessary to make fracked ‘tight oils,’ like those produced by the Bakken, profitable. At 18 million barrels per day for the US, the daily cost of this consumption is nearly 1 billion dollars or around $350 billion dollars per year, more than four times the cost of oil in the early 2000s.

Food also suffers from high energy prices and the stresses of drought. And with food prices rising due to increased energy costs, the public takes another hit of about an extra 50 billion dollars. The extra food costs due to drought were already counted in the 77 billion dollar figure, but they are worth mentioning again.

Even leaving out other costs from externalities such as the cost of deaths and adverse health effects coming from coal, the costs of foreign wars as a result of the necessity for a stable liquid fuel supply chain, and the costs of damage to US water supplies due to fracking, the total cost of harm caused by fossil fuels currently amounts to about 400 billion dollars for this year alone or about 2.5 % of GDP.

A very heavy blow. It represents the difference between the struggling economic growth we are seeing now and the much more rapid rates of growth during the 1990s when the weather was less severe and when fuel costs were much lower.

We can no longer provide a rationale for a continued economic growth when the basis for that growth is assumed to be the damaging and depleting fossil fuels. The very fuels which will make the droughts continue to be more frequent and more severe, which will continue to make the weather more damaging, and which, sooner than we expected, will drive the seas to rise and threaten many of our major cities. The very fuels whose cost, averaged over time, will keep going up as they become more difficult to locate and extract.

These fossil fuels, which are the source of so much harm, have now come to the point where they are no longer economical.

Links:

Earth Alone

Climate Change, Resource Depletion Making Oil Dependence Economically Unsustainable

Over the past few months, we’ve been focusing primarily on climate change’s amplifying impacts and increasing damage to human societies. But with this month’s Department of Energy Short Term Energy Outlook (STEO) report, it is important to take a step back and examine again the powerful economic headwind that is resource depletion.

In context, oil, gas, and coal companies have, over the past few years, been fighting an epic political and public relations battle for the hearts and minds of the American people. We can hardly avoid the commercials. The endless repetitions of ‘we agree’ glossing over oil companies agendas on television again, and again, and again. We can hardly avoid the slanted news reports. The hit pieces that are put out on the Chevy Volt with almost weekly recurrence, the most recent one coming from Reuters. And we can certainly not avoid the massive political influence the fossil fuel companies have exerted on the political process this year in the Presidential, National, and State elections.

The energy future of the United States and our climate and economic health will, in many ways, depend on whether or not the fossil fuel companies, led by the oil companies, again gain dominance over both our energy and our political systems. In short, oil, gas, and coal have no future. And tieing our futures to those dirty, dangerous and depleting fuels is like grabbing hold of a 200 lb iron weight while struggling to tread water in a stormy ocean.

Why? Well, for starters, the oil companies aren’t any where near close to telling us the truth about the economic viability of their fuels.

The first set of misinformation is well established. The fossil fuel companies, much like the tobacco companies of a by-gone day, much like the south which depended on slave labor for their economic prosperity, aren’t telling us the whole story. In the case of climate change, they’ve actively waged numerous vicious public relations campaigns not only aimed at misinforming the public on the urgency of the climate crisis. They’ve also funded numerous attack campaigns leveled directly against the climate scientists themselves. Such a wide-spread war on science hasn’t been seen since the Renaissance. It has resulted in many scientists receiving death threats. But the broader damage is to society which is now facing the worst climate crisis ever in human history. The trouble fossil fuel emissions have brewed up in our atmosphere could easily be called Biblical. And whether or not we respond to this threat in a timely fashion is a matter of life and death for human civilization and for the human beings who depend upon it for survival.

Though the issue of climate change is pretty broadly understood, the second issue making oil non-viable as an economic resource is less well understood. And, though probably less harmful overall than climate change, its revelation gives lie to the assertion by oil companies that its fuels are a resource necessary for economic growth. To the contrary, the fuel is economically destructive. Why? Because it has depleted to the point that it is no longer economically viable to remove an increasing portion from the ground.

Just last week, reports from fracturing companies found that as oil prices dropped in June, July and early August a number of wells in the tight oil fields of North Dakota and Texas were idled. Why? Simply because these companies could not make a profit on oil costing less than $90 per barrel. This very high marginal cost of oil is bumping up against the level at which world economies suffer from recession. A range that the current economic malaise is proving is between $100-$150 dollars per barrel. The oil is just getting too darn expensive for a world economy to run on.

Then this month’s STEO report rolled in showing preliminary data that doesn’t bode well for the future of world oil production.

But before we go into this month’s STEO report, we should talk for a moment about the ridiculous papers being put out by the world’s oil establishment. Just last month, a former oil executive published a paper entitled “Oil the Next Revolution.” Just looking at the title brings up a little of a chuckle. Wasn’t oil last century’s revolution? Making such an extraordinary claim would require extraordinary evidence. But Leonardo Maugeri completely fails to deliver. First, he makes a highly spurious claim that world oil production will reach 110 million barrels per day by 2020. He does this by tinkering with the decline rates — he assumes a less than 2% decline rate for the world’s existing and future oil fields, the real rate is somewhere between 4 and 7 percent. Next, he makes extremely optimistic predictions about the world’s ability to economically produce tight oil like that in the Bakken. Finally, he conflates natural gas liquids with oil production. Unfortunately, natural gas liquids aren’t so easily fungible with oil, requiring highly specialized refineries to turn into diesel fuel. Maugeri claims a total of 49 million barrels per day of new oil conflated with natural gas liquids gets us to this 110 million barrels per day by 2020 in an environment of very low decline rates and very fungible natural gas liquids.

Maugeri is vastly wrong. He is wrong when it comes to the decline rate. He is wrong when it comes to the fungibility of natural gas liquids. And he is wrong on the ability of the world to economically add 49 million barrels per day of new supply. And this is where I return to the marginal price of fractured oil. $90 today. That’s what’s required to lift the new oil up out of the ground. What does Maugeri assume for his price of oil in 2020? Maugeri assumes oil will remain above $70 per barrel.

Maugeri already got the price wrong. We can’t maintain 89 million barrels per day at less than $90 per barrel.

Enter this month’s most recent STEO report. Now the first number we want to look at is consumption. Consumption is the best measure for world demand. Despite misinformation to the contrary, world demand has been very high since 2004. The only time in which the world experienced a reduction in demand was during the Great Recession in 2008 and the downturn that followed in 2009. At all other times during this period, demand was going up. Today, according to the STEO report, world oil consumption/demand is sitting at around 90.17 million barrels per day. Now just keep that number in your mind.

Now let’s look at the next number. World supply. That number is 88.41 million barrels per day. Immediately, we can do a little math and figure out that supply is less than demand by about 1.76 million barrels per day. This situation would tend to support a high price of oil. Well higher, in fact, than the marginal cost of producing a barrel of oil. And what was the average price? About $94 per barrel over the month of August just $4 per barrel above the supposed marginal cost of production. But let’s hold here on prices and talk a little bit more about supply.

In August, total world oil supply fell by 160,000 barrels per day from July. This isn’t too big of a deal at first blush. But it does follow a fall in oil supply of about 140,000 barrels per day from June, another fall of 130,000 barrels per day from May, and another fall of 120,000 barrels per day from April. This total of 550,000 barrels per day loss in production over the course of four months is not what one would expect to see if the world were on the verge of roaring to 110 million barrels per day within 8 years. In fact, we should see, on average, an 800,000 barrel per day increase over the same time period if that were the case.

But the overlying data isn’t what’s most disturbing. It’s where the losses come from. From July to August of 2012, US oil production fell by 300,000 barrels per day. Part of this loss is due to the fact that marginal, high cost, fields were idled due to the falling price of oil. In other words, these fields could not produce oil economically and were temporarily shut during a period when oil prices averaged at about $94 per barrel! Other losses likely came from ethanol production due to the fact that corn took a huge hit in this year’s climate-change induced drought (it is worth noting that, these days, ethanol counts as oil).

What brought down US oil production in the month of August can best be described as a combination of oil depletion and climate change.

But before we depart from the oil supply picture, let’s take a look at one other country — Russia. In the STEO report, Russia is listed as the Former Soviet Union. It includes all the oil producing states formerly part of the Soviet Union (FSU). Notably, August saw FSU production fall by 261,000 barrels per day to its lowest levels since August of 2009. This drop is an ominous sign for the prospects of world oil production. Russia relies on a number of very large depleting oil fields for the bulk of its production. Major efforts have been made to enhance production. But, according to the most recent reports, these efforts appear to be falling short.

Back to the larger picture, it appears that world oil production has stalled and fallen back into a slow decline. And there are troubling signs coming from both Russia and the United States.

Now, with these less than happy thoughts in mind, let’s go back to demand, supply, and price. Normally, in a natural environment, the price of oil would be allowed to rise so that new supply could come to market to meet demand. We have supply shortfall. We have marginal production waiting on the sidelines. So why isn’t price rising? What’s holding back price?

One need only look at the current world economic situation to see what’s keeping price in its gate. The world is, essentially, lurching about at the brink of another recession. Any bump in oil prices may kick the world back over the edge. So, in this event, high marginal prices of oil are bumping directly up against the world’s economic ability to sustain demand. And given the current leeching away of world oil supply, that ability is again placed in serious doubt.

Given these factors, it is increasingly clear that the world’s oil companies aren’t telling us the truth. Despite every economic contortion possible, oil is simply no longer a viable means to sustain and grow the world’s economies long-term. It is too expensive to extract. Its marginal prices are too high to bear. And the damage it inflicts on world economies through the ongoing and amplifying force of climate change creates an external insult that further reduces the abilities of economies to rationally function. Simply put, the oil is unsustainable and the faster we are able to both increase efficiencies, alternatives like the Volt, and the proportion of our renewable energy allotment, the better off we will be.

As for the oil companies endless re-assertions. We decidedly do not agree.

Links:

http://www.eia.gov/forecasts/steo/tables/?tableNumber=6#endcode=201312&periodtype=m&startcode=200901

http://belfercenter.ksg.harvard.edu/files/Oil-%20The%20Next%20Revolution.pdf

Hunger Games — A World Suffering From the Devastating Aftermath of Climate Change and Resource Depletion

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This week, the long awaited Hunger Games by Susanne Collins will grace the silver screen. A popular dystopia novel, Hunger Games is set in an all-too-possible future world. A combination of climate change and resource depletion result in a United States shattered into 12 districts ruled by a dictatorial and repressive regime.

In the world of Hunger Games children are required to be sent as tribute to fight in a Battle Royale to the death. Katnis, the main character finds herself in the unique position of deciding to take her sister’s place when she’s chosen to fight in the games (Yes, I know, but Hunger Games was published three years after Luthiel’s Song. So it appears the inspiration may be running the other way).

But what’s most uncanny about this amazing series is that it occurs in an, entirely possible, future world. The climate is hot, the coastlines receded, and resources are scarce and growing ever moreso. A greedy and insulated ruling city lords its power over its subject districts in a reinvented feudalism. The subjects of these outlying districts are pressed into slave labor even as they are slowly starved. Though unrealistic, the map below is a dark vision of a world ravaged by these ills:

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In stark contrast to the hundreds of millions now living in the continental US, only hundreds of thousands remain. It is clearly a world that has suffered a devastating collapse brought on, at least in part, by an irresponsible and self-serving leadership.

What makes the story most compelling is Katnis’s struggles against a leadership that continuously preys on the people under its rule and against the corruption that seems to crop up each time a hand reaches out to grasp power. The books painted a well-rendered and deeply compelling story about a world that could be. I sincerely hope the movies live up to the spirit of the originating vision.

 

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