“Prepare for Four Weeks of Hell”

South Africa has been hit with a power crisis in recent weeks.  Electricity demand has been so high that Eskom, the South African power monopoly, has not been able to keep up with demand.  This lack of regular energy has caused gold mines in the country to shut down, and has caused many other problems.  If you’re curious to see what, just check out Google for a wide number of articles.

Eskom’s proposed solution is a month of blackouts in an attempt to stabilize the power grid, followed by rationing of power to all customers starting in March.   South Africa is the largest economy on the African continent, and Eskom exports surplus electricity to other African nations.   Their inability to meet demand will have widespread ramifications for Southern Africa far beyond the borders of South Africa proper.  Already, precious metals prices are rising in response to lowered production from mines in the region.

This story is intriguing to me because South Africa is considered by most people to be a modern, industrial economy, and it’s inability to supply regular power to it’s customers will make an interesting case study for those of us interested in Richard Duncan’s Olduvai Theory.  As you may remember, Duncan’s premise is that industrial civilization ends when the power grids go down permanently.  While we won’t be seeing that in South Africa, we will get a chance to see how interrupted supplies of electricity, combined with mandatory conservation programs, will affect what was a growing modern economy.

The Global Battle for Resources

Interesting article from the Financial Times on the World Economic Forum held earlier this month in Davos, Switzerland, courtesy of Speaking Truth to Power:

“The costs of food and energy are rising fast. The availability of water is also becoming an issue, from Australia to Africa. The struggle for these three basic commodities – food, energy and water – came up repeatedly in Davos.”

The Davos forum is one of those times when the world financial & political elite gather to hob-nob, pat themselves on the back, and think about their plans for all of us in the coming years. When these folks have no idea what the hell is going on, watch out. The one thing they seem to know for sure is that there isn’t going to be enough food, potable water & oil to go around if things keep going the way they are currently.

As the article points out, we’re seeing a lot of little, local crises popping up, but few people are bothering to tie it to the bigger picture. We’re reaching the point where the current ways of doing things will not be able to satisfy world demand. How much pain will we all need to go through before we start adapting the new scarcity paradigm? I wish I knew, but I’m afraid the answer will be: “a lot more than we’re seeing now.”

 

About That Peak Oil Theory…

From: Jeroen van der Veer, Chief Executive
To: All Shell employees
Date: 22 January 2008

Subject: Shell Energy Scenarios

Dear Colleagues

In this letter, I’d like to share reflections about how we see the energy future, and our preferred route to meeting the world’s energy needs. Industry, governments and energy users – that is, all of us – will face the twin challenge of more energy and less CO2.

This letter is based on a text I’ve written for publication in several newspapers in the coming weeks. You can use it in your communications externally. There will be more information about energy scenarios inthe months ahead.

By the year 2100, the world’s energy system will be radically different from today’s. Renewable energy like solar, wind, hydroelectricity and biofuels will make up a large share of the energy mix, and nuclear energy too will have a place.

Mankind will have found ways of dealing with air pollution and greenhouse gas emissions. New technologies will have reduced the amount of energy needed to power buildings and vehicles.

Indeed, the distant future looks bright, but getting there will be an adventure. At Shell, we think the world will take one of two possible routes. The first, a scenario we call Scramble, resembles a race through a mountainous desert. Like an off-road rally, it promises excitement and fierce competition. However, the unintended consequence of “more haste” will often be “less speed” and many will crash along the way.

The alternative scenario, called Blueprints, has some false starts and develops like a cautious ride on a road that is still under construction. Whether we arrive safely at our destination depends on the discipline of the drivers and the ingenuity of all those involved in the construction effort. Technical innovation provides for excitement.

Regardless of which route we choose, the world’s current predicament limits our maneuvering room. We are experiencing a step-change in the growth rate of energy demand due to population growth and economic development, and Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.
As a result, society has no choice but to add other sources of energy – renewables , yes, but also more nuclear power and unconventional fossil fuels such as oil sands. Using more energy inevitably means emitting more CO2 at a time when climate change has become a critical global issue.

In the Scramble scenario, nations rush to secure energy resources for themselves, fearing that energy security is a zero-sum game, with clear winners and losers. The use of local coal and homegrown biofuels increases fast.

Taking the path of least resistance, policymakers pay little attention to curbing energy consumption – until supplies run short. Likewise, despite much rhetoric, greenhouse gas emissions are not seriously addressed until major shocks trigger political reactions. Since these responses are overdue, they are severe and lead to energy price spikes and volatility.

The other route to the future is less painful, even if the start is more disorderly. This Blueprints scenario sees numerous coalitions emerging to take on the challenges of economic development, energy security and environmental pollution through cross-border cooperation.

Much innovation occurs at the local level, as major cities develop links with industry to reduce local emissions. National governments introduce efficiency standards, taxes and other policy instruments to improve the environmental performance of buildings, vehicles and transport fuels.

As calls for harmonization increase, policies converge across the globe. Cap-and-trade mechanisms that put a cost on industrial CO 2 emissions gain international acceptance. Rising CO2 prices accelerate innovation, spawning breakthroughs. A growing number of cars are powered by electricity and hydrogen, while industrial facilities are fitted with technology to capture CO 2 and store it underground.

Against the backdrop of these two equally plausible scenarios, we will only know in a few years whether December’s Bali declaration on climate change was just rhetoric or the beginning of a global effort to counter it. Much will depend on how attitudes evolve in Beijing, Brussels, New Delhi and Washington.

Shell traditionally uses its scenarios to prepare for the future without expressing a preference for one over another. But, faced with the need to manage climate risk for our investors and our grandchildren, we believe the Blueprints outcomes provide the best balance between economy, energy and environment.

For a second opinion, we appealed to climate change calculations made at the Massachusetts Institute of Technology. These calculations indicate that a Blueprints world with CO2 capture and storage results in the least amount of climate change, provided emissions of other major manmade greenhouse gases are similarly reduced.

The sobering reality is that the Blueprints scenario will only come to pass if policymakers agree a global approach to emissions trading and actively promote energy efficiency and new technology in four sectors: heat and power generation, industry, mobility and buildings. It will be hard work and there is little time.

For instance, Blueprints assumes CO2 is captured at 90% of all coal- and gas-fired power plants in developed countries in 2050, plus at least 50% of those in non-OECD countries. Today, there are none. Since CO2 capture and storage adds cost and brings no revenues , government support is needed to make it happen quickly on a scale large enough to affect global emissions. At the very least, companies should earn carbon credits for the CO2 they capture and store.

Blueprints will not be easy. But it offers the world the best chance of reaching a sustainable energy future unscathed, so we should explore this route with the same ingenuity and persistence that put humans on the moon and created the digital age.

The world faces a long voyage before it reaches a low-carbon energy system. Companies can suggest possible routes to get there, but governments are in the driving seat. And governments will determine whether we should prepare for a bitter competition or a true team effort.

That is the article, and how I see our challenges and opportunities. I look forward to hearing how you see the situation (please be concise).

Regards
Jeroen van der Veer, Chief Executive

(emphasis added)

If you didn’t pick up on this in the memo, Mr. van der Veer is CEO of Royal Dutch/Shell Group.

This is one of the more pessimistic public estimates to come out of one of the oil majors, who usually fall back on the CERA-esque ‘plateau after 2030’ view. 2015 isn’t that far away…

I got this from The Oil Drum. This is a very important message IMO, and should be shared as widely as possible. When another of the oil majors gets pessimistic (remember Chevron’s “Will You Join Us?” campaign?) people need to sit up, take notice and start using their noggin to think about what’s coming down the road at us. The less we think, the less we act, the more likely we are to get a government ‘solution’ (think green fascism) rammed down our throats.

What the Banks Fear

Great stuff from the LA Times, via Calculated Risk:

A homeowner who can’t sell his house tells the L.A.Times, “Foreclose me. … I’ll live in the house for free for 12 months, and I’ll save my money and I’ll move on.” Banks and lenders fear this kind of thinking — that walking away from a house could be the smart economic move — appears to be on the rise.

The Sky Ain’t Fallin’… yet

Well, we survived Black Tuesday.

Depending on how you look at things, this was either a non-event and just another down day in the markets, or perhaps it was more than that.

• The main bloodletting was put off due to the Fed’s emergency 75bp rate cut before the markets opened yesterday. This emergency rate cut (the first since just after 9/11) has been billed as a ‘once in a generation event.’
• Normally, when the Fed cuts rates even by just 25bp (i.e .25%), the markets usually surge ahead. In this case, we have an emergency rate cut of .75% and the markets reward us by ‘only’ losing around 120 points.
• We got into this mess in part through extreme cuts to the Federal Funds Rate fueling inflation and risky loans and general greed. The rate hikes that were designed to slow the economy down and rein in inflation have helped cause even more problems, and we are now trying to fix them by slashing rates again. This may very well trigger another round of debt expansion, but it will also cause inflation and higher prices for most everything sooner or later.
• We’ll have more problems over time as the housing market continues to worsen. If we use most of our ‘bullets’ now, what will we do when things really start getting ugly?

Asian markets have responded positively today, but European ones don’t look to be following suit, and the Dow is opening down as well. Yesterday wasn’t a catastrophe, but the US government took drastic measures and only managed to slow down the losses. People can argue about whether the US has entered a recession yet or not. What seems obvious to me is that we have yet to experience any real discomfort, but that’s coming.

Those in power who control finance aren’t all-knowing, but they’re not idiots either. They’ve got to know that the proposed ‘stimulus’ packages are short-term, temporary fixes at best and will do nothing to solve the major problems our economy faces. This makes me wonder if they have long-term plans identified, or if they are simply kicking the can down the line until 2009 when a new president gets to deal with things. Any major fixes to the economy will be accompanied by pain, which most Americans won’t voluntarily accept. In the amoral calculus of high-level politics, maybe some policymakers have already figured things out to one degree or another, figured out that there’s no realistic way to implement things without major upheaval, and are willing to let things collapse in order to make the public amenable to the new ‘solutions’ they will provide?

Look Out Below!!!

As a follow-up to my earlier post from today, there’s a wave of panic & fear cascading through the internet regarding the down day in the global financial markets.   The main driver of this is how all of the gloom & doom today will spill over into the US market tomorrow.

For a sampling of ideas, check here, here & here for starters.

Market futures are pointing to a lower opening; the question is how low will it go, and what (if anything) will Washington do to fix things.   Lots of people are freaking out and  prophesying doom.  It’ll be interesting to see what happens.

Enjoying the Day Off

I have the day off work today in observance of Martin Luther King Jr. In between taking care of household chores I’ve been putting off for months, feeding the kids, and unsuccessfully trying to loaf around, I’ve been reading the news. This is almost always a bad idea on a day that is supposed to be relaxing for me, but I do it anyway. I’m just a sucker for punishment I guess.

Looking Dinner in the Eye

Interesting article in the NY Times today about one take on the ‘locavore’ fad that’s starting in cuisine. Celebrity chef Jamie Oliver killed and butchered a chicken on one of his cooking shows (free registration required, or use BugMeNot) as part of a campaign to raise awareness of consumers’ demands for cheap food and the effect that has on both livestock and the farmers that raise them.

Mr. Oliver performed some other acts to show how animals are treated (more like mistreated) on factory farms, and to be honest, the end of this article almost reads like a pro-vegetarian tract. Quote:

“Mr. Oliver’s message to supermarket shoppers is clear: the only reason for the miserable lives lived by most chickens is your insistence on cheap food.”

He’s right, of course. We are usually two or more steps removed from the people that produce the food we consume, which allows us the ability to not think about how the choices we make affect both producers and animals. We may be able to suppress the thought that we’re screwing a farmer over when we buy vacuum-packed slabs of meat in the supermarket; most of us would have issues looking the farmer in the eye at the farmers’ market and doing so in person.

I’m not a vegetarian. I lived as one for a period of several years a while back but left that life choice for a variety of reasons. My wife has told me that if she had to butcher her own meat, she’d be a vegetarian, and I suspect that I would be as well. I can prep fish without much problem, but I don’t know that I could slaughter a pig or a cow. My guess is that I could get used to it eventually, but it would be hard.

 

5 Myths About Energy Independence…

This is old hat to a lot of readers here, but Robert Bryce has an excellent article in the Washington Post about the term “energy independence” and how it’s being used (more like abused) by candidates on both sides of the political spectrum in this year’s election cycle.

This would be a good link to throw at someone who thinks our dependence on foreign sources of energy is a problem that can be easily solved by growing some more corn, or getting more hybrids on the road, or switching to hydrogen, or fuel cells, or batteries, etc.

Talking to most Americans about energy issues is like talking to them about fiscal policy… the size of the issues are so large and so complex that most folks’ eyes glaze over when discussing them.  This allows politicians to pander to them with grandiose yet vague ideas about solving our ‘energy problem’ without mentioning the word ‘conservation’ once.

Carter Op-Ed on the 2008 Presidential Candidates.

J. Carter makes his points here… clearly.  As they often do, the Onion does a fair bit of truth-telling mixed in with  humor.

Not safe for work…