How Energy Made Us (I) – Bold Predictions for 2030 Hitting Peak Oil


Lest we forget to look over our shoulder,

We forget our fear, our energy nightmares.



INTRODUCTION TO ENERGY FORECASTING: As many readers will know, the German energy industry goes through some rough patches at the moment. Generating electricity is not as profitable as it once has been. That is partly the result of subsidsing renewable energy that cannot be sustained financially. It also has to do with bigger things.

BIG PICTURE ENERGY MARKETS: The energy sector is changing rapidly. Oil and gas prices have risen gradually, only to fall like a stone as the commodity supercycle comes to an end. Another reason is the global economic downturn. This has to do with peak oil in a broader sense. Peak oil for conventional oil reserves has probably already been reached.

The rising CAPEX costs of oil and gas exploration and production are being passed on to customers. First they are passed on to the physical traders and then to the customers. It is important to note that oil is a global commodity. The costs are ultimately passed on to the end customer, who will ultimately pay the price. The difference is the extent to which oil is subsidized and/or taxed by countries in a given country.

Oil will be much more expensive then in the past.


After wood,

there was charcoal, after charcoal,

coal,

then there was oil, and oil was followed

by a world without limits.


Put simply, we face rising costs in the exploration and production of oil and gas because we are not able to find cheap new reserves to replace declining production from old reserves.


1. A recognition of truth and reality


Higher energy prices will lead over time to major changes in the social structure of European society. This will happen in one way or another. But the important thing is that higher energy prices will lead to restrictions on individual use of precious, energy-rich resources. In resource-poor countries these resources are purchased. This can only be achieved if these resources are exchanged for the products created by labour productivity.

This is highly unlikely to happen due to demographic changes in the European “core regions”. Governments would not be able to take on more debt. As a result, resource consumption would be restricted and with it the consumption of the population. Alternatively, industrialized countries could appropriate the resource wealth in other countries by mining locally. But that would entail enormous defence and security costs. In one way or another, this process will lead to a restructuring of society.


2. Taxes are likely to increase once oil production reaches its peak.


Taxation of the income of middle class workers will be the topic of the hour. As income taxation rises, the middle class will come under increasing pressure and find itself between a rock and a hard place.

This will inevitably lead to a shrinking middle class and possibly declining work incentives due to the burden of taxation, because of a system of restribution to share the (energy) wealth. When the financial administration or the tax redistribution mechanism fails, so does the system of redistributing the energy wealth, and by proxy, financial wealth through fiscal levers. Voting has very little to do with it. A declining share of the population, in particular the now infamous ‘Generation Y’ born between 1981 and 2000 will be unable to support the system, and even if they wanted to, they could not. They will turn inward and look for guidance in their family and the regions. The Mayan civilization 2.0 fall from grace, but with more creature comforts beforehand.


3. Energy woes and future energy remedies


This accumulated wealth, resulting from generations of growing labour productivity, will increasingly be targeted by the state – to crack a few more oysters.

The living conditions of people will divide society. There will be a smaller group that can plan for the long term and who have invested their energy in preserving things. There will be a much larger group of people who will target this wealth. Energy is the basis of working life, mobility and progress. Is there a resource balance for all?

What then counts for society are people’s relationships, contacts, loyalties, work experience and knowledge. What counts are the skills that really exist. When resources are scarce, people must have generalist skills, and specialisation has many disadvantages in times of energy shortages. New networks will form to try to satisfy the NEW hunger for energy.

This will be a long-term process, splitting and shaping many people along the lines of energy wealth and energy poverty. The emerging structures will not always encourage productive activities. If there are fewer incentives to be productive and active, labour productivity will be lower. This will lead to a misallocation of energy resources. This will lead the economy and global energy markets into further economic turmoil about a dozen years later. Society will try to optimise energy systems and network infrastructure to maintain the highest standard of living for that long.

Innovation will become more expensive for companies because of a lack of productive employees to drive these developments. There is less capital available for research and development, simply because of lower growth and because low-hanging fruit has been picked. By this we mean that difficult problems will be resolved to the end. On the other hand, research has become more capital intensive and offers a lower return on investment. We see this process particularly clearly in the pharmaceutical industry, where the development of new pharmaceuticals is very costly and increasingly less promising.


4. BOLD PREDICTIONS ABOUT THE FUTURE OF PEAK OIL AND ENERGY MARKETS


The transformation of the energy world will proceed slowly, but with some breaks.

Energy is the key to transforming our society.

Energy will forever be the force that shapes societies.


5. References


Deffeyes, K S 2006, Beyond Oil: The view from Hubbert’s Peak, Hill and Wang, ISBN 0-8090-2957-X, United States.


Many thanks for the shared interest in the energy world!



This article is just meant to inform the reader of recent developments in the energy industry at large and to share knowledge and insights with a wider audience. The author does not put forth investment recommendations. This article should not be taken as investment advice and the author cannot be held to account for investments made. For more information, please refer to the Legal Disclosure and Privacy Policy, which you can click on or find at the top of this page in the menu bar. 

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