by Nick van der Leek
Energy is the source, always the source. It is the source of growth, the scarcity of it causes economic contraction, the cheap abundance of it determines the extent and sustainability of a recovery.
A sick person consumes less energy, but that does not mean those energy needs are any different; in fact it means once the person is restored to health, their energy needs have to return to pre-sick levels. Does anyone seriously think this is going to happen when the sick economy man 'recovers' - after $100 plus oil in 2008?
Status of the Supergiants
We already know supergiants are in decline. And this can only continue, because decline rates are a function of investment rates.
The Burgan field in Kuwait, once the world’s 2nd largest oil field began to decline in November 2005.
Mexico’s Cantarell, was once one of the world’s largest. Discovered in 1976, Cantarell produced 2.1 mbpd at peak using nitrogen injection techniques. 6 years ago it was ranked second in the world for its oil output, behind Saudi Arabia’s Ghawar.
In 2009, Cantarell production dropped 36% year on year, and Mexico’s overall production dropped 7.8%. After just 6 years, Cantarells’s production halved to just 770 000 bpd.
In an article published by Bloomberg in 2008, Pemex’s Jesus Reyes Heroles indicated that they expected Cantarell’s to decline to a basic level of 450 000 to 500 000 towards 2012.
Bigger is Badder
For context, Cantarell is the USA’s second largest supplier, and the USA is the world’s largest consumer of energy, the world’s largest polluter, the largest car population in the world, and the world’s largest economy.
Meanwhile Toyota has indicated sales have risen over 6% based primarily on the USA’s cash for clunkers program. The USA has 247 million registered passenger vehicles, far more than any other country worldwide.
It’s well known that the USA is consuming a quarter of the world’s energy; this figure corresponds to the 22% of the world’s CO2 emissions. On 3 September 2009, the United States Census Bureau estimated the world population at 6.782 billion. The USA’s population is less than a twentieth [4.52%] this figure, but produces around 20% of the world’s GDP. There you have it in a nutshell, how energy consumption translates to GDP.
Placebo treatment
Until recently, the USA had one of the world’s oldest and largest companies, GM. The efforts to bailout these automakers, given energy realities, amounts to a placebo treatment. Perhaps America can be brought back to a guise of normality, but you cannot fool reality forever. America’s addiction to easy motoring cannot be sustained. The American Dream, of a house in suburbia, a car, has been accessorized to include all the accoutrements to this lifestyle, malls, fast food, skyscrapers – all of which are energy intensive and rely on cars to ferry humans beings on what amounts to several ‘trips’ each day.
The American Dream has spread to other countries besides America of course, principally China, but also the EU. South Africa’s addiction to easy motoring means that we have virtually no public transport to speak of, and an attempt to resuscitate and even modernize our public transport is met with taxi drivers who believe that driving is not only an entitlement, but a right. This psychology is part of a mindset that has no future, simply because our expectations with regard to energy are unrealistic.
Fundamental change
It profits everyone to believe that these endowments are waiting for us, after all, once the economy recovers. And mainstream media suggests we’ll see the mythical land of ‘Recovery’ later this year. And yes, we may see a ‘pseudo’ recovery. But I predict we will see a succession of ‘n’ shaped curves [minus the left leg] for a continuous stepping down, contracting world economy. The economy may recover to horizontal level, or better, enough to stimulate energy prices, but once these approach $80 - $100 there will be a correction or a crash, and the entire process will repeat, with more and more market participants dislodged, disenfranchised or facing foreclosure of some sort.
Given the depletion levels we’re seeing not only at Cantarell, but also in Saudi Arabia and the rest of the world we have to begin to fundamentally change the way we live, the way we do business, the way we conduct our economics. This is because, fundamentally, the energy that predicates all our arrangements, has changed. Much depends on our willingness, and our courage, to face the implications of this cruel new world. It’s world with fewer choices. Our prospects may not be worse, necessarily, but different.
The implications of course, are vast, as Jeremy Leggett has stated: “A cohesive society will depend on plentiful supplies of oil for years to come.” Our response to the energy issue will determine nothing more, and nothing less, than what society will be in the future.
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