Energy price control

[Jo Abbess]

Dear Clavertonians,

Some of you will have heard me ruminate in person, or somewhere on my
weblog, about my theory that given the conflation of economic collapse
and Peak Oil, and the consequent Peak Natural Gas that inevitably
attends, there are already signs that the prices of energy are being
controlled.

You may think that energy markets are, in fact, free, but that is far
from the reality.

Ask yourselves this - how did the price of oil rocket so much a few
years ago - and what on Earth brought it back down again ? Clearly,
any kind of theory about a relationship between the price of oil and
it being a Function of Supply and Demand was blown right out of the
window at that point.

What are the mechanisms and tools used to keep oil and gas prices low
- particularly in the the rumour mill of the USA ?

Well, there are the obvious ones - "market confidence" in media
reporting, state and federal pronouncements. Why, they even roll out
Rex "Rexx" Tillerson of ExxonMobil when they need to to swear there is
a glut of oil, and the market prices duly drop.

It doesn't do for the economy to suffer high energy prices - and I
think you will see a much stronger political effort in this regards
going forwards (to use a much-hated management-speak term). Any
untoward things that had been blindly ignored may now be unpacked -
for example :-

http://www.guardian.co.uk/business/2012/nov/12/libor-like-manipulation-gas-markets

The tax and duty associated with oil and gas will be suppressed :-

http://www.guardian.co.uk/politics/2012/nov/13/treasury-fuel-duty-rise-osborne

whilst tax breaks, and even subsidies, will increase (socialising the
costs of new exploration and production) :-

http://www.telegraph.co.uk/sponsored/earth/statoil/9533958/george-osbourne-oil-gas-tax-break.html

Energy prices have to be controlled by storytelling, as direct
intervention in the "markets" would be taken apart. I think that the
emphasis placed on shale gas production in the United States of
America is part of this narrative - there is so much public relations
associated with the idea that shale gas is the gamechanger that is
keeping the price of gas down.

But do you believe parts of this narrative ? Can the USA really become
energy-independent ? Far from it :-

http://www.guardian.co.uk/environment/2012/nov/12/us-biggest-oil-producer

Despite the projections from a few years ago that shale gas could
provide a huge proportion of US gas even going into the 2030s, the
International Energy Agency yesterday published a much different
chart. Compare and contrast this position :-

From EIA 2011 :-
http://images.angelpub.com/2011/20/8699/eia-shale-gas.jpg
http://greenmatterscsg.files.wordpress.com/2011/04/eia-annual-energy-outlook-sahle-gas-offsets1.jpg

with this : November 2012 EIA :-
http://www.eia.gov/forecasts/steo/report/natgas.cfm

Can the shale gas miracle be continued ? Really ?

If you are sceptical, this means that the IEA WEO 2012 pronouncements
and projections should in fact be taken with a huge pinch of fracking
sand. Can we believe the shale gas projections in this, given the
current state of (shale gas) play(s) :-

http://www.carbonbrief.org/media/130739/screen_shot_2012-11-12_at_12.25.47.png

The USA may well become the leader in global oil production, but the
envelope on combined oil and gas production is now being projected as
depleting, so that "USA leads in oil" story is spin :-

http://www.nytimes.com/2012/11/13/business/energy-environment/report-sees-us-as-top-oil-producer-in-5-years.html

The energy market price structure continues to be weighed down by
subsidies for fossil fuels, for as Peak Oil (and the shadow of Peak
Natural Gas behind it) and Peak Coal loom, economic dependence on
fossil fuels will dictate increasingly favourable governance in order
to keep the whole ship sailing :-

http://theconversation.edu.au/fossil-fuel-subsidies-up-nuclear-power-down-iea-10703

Regards,

jo.


--
Ms J. Abbess MSc
+447717221396
http://www.joabbess.com

[Chris Jones]

Jo,

ERoEI moves on from discussion about peaking in so far as the energy cost of
obtaining energy resources is accounted for and therefore more sensible
choices - free of subsidies and policy incentives - could be made.

The Energy Intensity Ratio - EIR - is implicit of ERoEI trend - but of
course includes cross-subsidies - because typically energy is a known cost
in economic production.

BP Statistical data looks good at their scale, falling steadily until
ridiculous interpretation of the trend could indicate that no energy is
needed for a unit of GDP. But wait, other authors spookily suggest that
after 2000 on a finer scale the EIR has been rebounding, especially after
2008.

What all that suggests and in answer to your post is that the era of
diminishing returns - even with greater financialisation of the economy - is
firmly established. As you say Peak Oil/Peak Coal/Peak Gas (and in that
order) will not only be geologically driven, but also ERoEI/EIR driven with
regenerative feedbacks from suppression of the economy. The problem is that
even the latest research does not know for sure how high the oil price needs
to go to suppress the economy - although one might guess where it is now.


Regards

Chris

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[Frank Holland]

Jo,

I enjoy reading your mails because you clearly do your research first.
However in this mail I think you are missing a crucial point, energy
controls the value of money, not the other way round.

Did you read those papers I posted 6 days ago by Vodra, and Charlie Hall
et al....well worth a careful read.

Frank

[Andrew Dicks]

Dear Clavertonians,

I remember as a fresh science graduate going to a presentation in the midlands many years ago by a young researcher from Birmingham University who was describing the economics of coal production in the UK. This was in relation to a mine that they wanted to open up near Coventry. One of the first things he said, which has stuck in my mind for many years, is that the price of energy (or should this be cost) is fundamentally a function of the cost of labour. That was obvious in the early days of coal mining when you could relate the cost per MJ to the cost of feeding a miner with a pick and shovel. In the oil and gas era that have followed I suspect it is not so easy. However, the relationship between energy and the value of money (by which the average person buys the essentials like food, shelter (and yes warmth), is an interesting one. I find Jo's posts quite thought provoking as she is quite clear in her thinking and has obviously done her homework, but I believe Frank is right on this too. I wonder if anyone went to that same lecture that I went to in Solihull, must have been mid 1970s.

Just as an aside, we have a situation in Australia where the price of petrol at the pump goes up and down quite markedly each week. You cant always predict when it will happen (which keeps the motorists on their toes), and there is always official denial by any of the oil companies that they deliberately control the prices. The servos (sorry for the Aussie lingo) run by Caltex, BP, Shell and the independents put their prices up and down in a kind of synchronized dance each week, usually at its lowest around Tuesday or Wednesday then up again for the weekend. Its quite bemusing, and I am sure nothing to do with the real cost of oil.

Cheers

Andrew

[Frank Holland]

Andrew,

A simple example of which comes first, energy of money; the bank of
England has "created" £375 billion of so called quantitative easing. All
at the click or two of a computer mouse. For simplicity lets say you pay
£1 for 10 KWH of electricity, so did the BoE create 3750 billion KWH of
electricity? No it created fiat money; to generate all that power would
require consuming resources, be they manpower, solar, wind, wave, coal,
oil, gas etc.

Think about it, please.

Frank

[Andrew Dicks]

Frank,

I understand your example, and I accept that printing fiat money does not create real wealth. I have always maintained, and teach undergraduates, that there has never been an energy crisis, but there are always losses whenever we convert one form of energy into another (otherwise known as waste), and there are issues (social and economic) associated with the equitable distribution of energy. As there is international trade in many forms of energy, especially oil and gas, there is also a political dimension, as Jo was pointing out.

As a technologist I can have an influence on the way that energy is converted from one form to another, which is why I have been an advocate of fuel cells with their intrinsically high efficiency and low environmental impact. I am also one of those guys that believes that wealth can be created by innovation in technology, and that helps to drive an economy. A profitable business that innovates is a wealth creation machine and may inspire people and stimulate the economy more than intervention by government or central banks. Take Microsoft and Apple as examples. This is why we continue to need good energy R&D.

Many thanks to both to yourself and Jo for your insight in this.

Thanks

[Chris Jones]

Precisely Frank why the era of diminishing returns should be so alarming.

Whether BoE and £375bn or the banks creating £200bn through debt every year,
both in the hope that they will earn a return in the form of interest, they
expect growth.

Now if you expect the era of diminishing returns (declining ERoEI through
policy or simple depletion of the best resources) and at the same time
peaking constrains energy availability in a double squeeze, then that
expected growth - and you worry about complex derivatives at 12-20 x times
World GDP based on betting there are earnings through growth - well, if you
accept this hypothesis you can join the collapsists.

That should shut down this thread

Regards

Chris

-----Original Message-----
From: energy-disc...@googlegroups.com
[mailto:energy-disc...@googlegroups.com] On Behalf Of Frank Holland

Sent: 13 November 2012 12:07
To: energy-disc...@googlegroups.com
Subject: RE: [Claverton] Energy price control

[Frank Holland]

Andrew,

Comments interspersed

Frank

On Tue, 2012-11-13 at 13:05 +0000, Andrew Dicks wrote:
> Frank,
>
> I understand your example, and I accept that printing fiat money does not create real wealth. I have always maintained, and teach undergraduates, that there has never been an energy crisis, but there are always losses whenever we convert one form of energy into another (otherwise known as waste)

Yes, Andrew, Delta G = Delta H - T Delta S , so we always lose T Delta S
going from one one form of energy to another.

> , and there are issues (social and economic) associated with the equitable distribution of energy. As there is international trade in many forms of energy, especially oil and gas, there is also a political dimension, as Jo was pointing out.
>
> As a technologist I can have an influence on the way that energy is converted from one form to another, which is why I have been an advocate of fuel cells with their intrinsically high efficiency and low environmental impact.

I am not so sure about those attributes. OK maybe an opportunity to get
more of Delta G, but in reality Ohmic Losses in the cells reduce this
considerably. And if you use a carboniferous fuel you get CO2, if you
use hydrogen where do you get that from without generating CO2?

> I am also one of those guys that believes that wealth can be created by innovation in technology, and that helps to drive an economy. A profitable business that innovates is a wealth creation machine and may inspire people and stimulate the economy more than intervention by government or central banks. Take Microsoft and Apple as examples. This is why we continue to need good energy R&D.
>

Monetary wealth can only be generated using energy, so we are back
there.