Monthly Archives: July 2014

“The Converging Economic and Environmental Crisis”

A clearer exposition of the challenges we face, and the resistance to good decision making inherent in our genetic makeup, you will not find. Loads of helpful metaphors! Well worth an hour and a half of your time…

Advertisements

Leave a comment

Filed under What, Why

Global Economic Slowdown and Threat of US Economic Warfare Extended to Germany

As dairy prices have tumbled to a (current) projection of $6.50 (bank forecast for lending) for the coming season, a major indicator of international trade has hit its lowest level for nearly 30 years:

World GDP growth expectations are collapsing, trade volumes are slowing, and the Baltic Dry Index has continued to slump to its lowest since the start of January 2013 (a holiday period). For some context, this is the lowest July level for the Baltic Dry since 1986… “noise”

Baltic Dry Index

The threats of economic action by the USA regarding its interests in Ukraine has expanded, with the US government focusing its regulatory attention on German giant Deutsche Bank in a thinly veiled threat:

Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That’s a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of… the world.

Deutsche Bank Derivatives equal to Global GDP

…Then again, none of DB’s numbers actually matter: if the banks needs a bailout the Fed will promptly step in, and today’s advisory has one simple end point, which happens to be the same as the recent BNP $9 billion fine – don’t even dare to side with Putin over the US. Because you sure have big bank over there Germany… It would be a pity if the NY Fed i) revealed just how insolvent it truly was and ii) decided not to bail it out subsequently.

* * *

As for Deutsche Bank’s response perhaps the simplest and most effective one would be for the Frankfurt megabank to tell the NY Fed that perhaps its own 150x leverage is just a little more worthy of attention.

Leave a comment

Filed under Uncategorized

Fossil fools?

My headline is a bit cheesy, but what other words can describe this desperate thrashing around in search of non – existent affordable oil…?

The cumulative blitz on energy exploration and production over the past six years has been $5.4 trillion, yet little has come of it

The epicentre of irrational behaviour across global markets has moved to the fossil fuel complex of oil, gas and coal. This is where investors have been throwing the most good money after bad.

They are likely to be left holding a clutch of worthless projects as renewable technology sweeps in below radar, and the Washington-Beijing axis embraces a greener agenda.

Data from Bank of America show that oil and gas investment in the US has soared to $200bn a year. It has reached 20pc of total US private fixed investment, the same share as home building. This has never happened before in US history, even during the Second World War when oil production was a strategic imperative.

The International Energy Agency (IEA) says global investment in fossil fuel supply doubled in real terms to $900bn from 2000 to 2008 as the boom gathered pace. It has since stabilised at a very high plateau, near $950bn last year.

The cumulative blitz on exploration and production over the past six years has been $5.4 trillion, yet little has come of it. Output from conventional fields peaked in 2005. Not a single large project has come on stream at a break-even cost below $80 a barrel for almost three years.

“What is shocking is that upstream costs in the oil industry have risen threefold since 2000 but output is up just 14pc,” said Mark Lewis, from Kepler Cheuvreux. The damage has been masked so far as big oil companies draw down on their cheap legacy reserves.

“They are having too look for oil in the deepwater fields off Africa and Brazil, or in the Arctic, where it is much more difficult. The marginal cost for many shale plays is now $85 to $90 a barrel.”

A report by Carbon Tracker says companies are committing $1.1 trillion over the next decade to projects that require prices above $95 to break even. The Canadian tar sands mostly break even at $80-$100. Some of the Arctic and deepwater projects need $120. Several need $150. Petrobras, Statoil, Total, BP, BG, Exxon, Shell, Chevron and Repsol are together gambling $340bn in these hostile seas.

Martijn Rats, from Morgan Stanley, says the biggest European oil groups (BP, Shell, Total, Statoil and Eni) spent $161bn on operations and dividends last year, but generated $121bn in cash flow. They faces a $40bn deficit even though Brent crude prices were buoyant near $100, due to disruptions in Libya, Iraq and parts of Africa. “Oil development is so expensive that many projects do not make sense,” he said.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10957292/Fossil-industry-is-the-subprime-danger-of-this-cycle.html

Leave a comment

Filed under Uncategorized

Response to Southland Times coverage of my submission to Venture Southland

My spoken presentation in relation to my submission to Venture Southland (http://bit.ly/1sTdmeB), and my original submission (http://bit.ly/1jHEBDi), for the record.

My primary objection to the coverage of the information I presented to the Venture Southland committee earlier this week in the Southland Times this week has 2 parts to it. Firstly, it fails entirely to present my main point, which is disappointing as it’s something I feel very strongly needs more public coverage.

Secondly, the editorial where my name is mentioned in relation to a tiny part of my original submission (industrial hemp growing) is factually inaccurate, and I feel the misleading editorial title (‘Dairy vs Hemp’) attempts to substantially misrepresent what I’m about and what I’m advocating for, potentially alienating a good proportion of Southlanders, who rightly would point out that dairy is currently an essential part of the Southland economy.

I’m reposting my entire spoken submission to the council here to leave no room for doubt on that matter:

I’d like to thank you for this opportunity to speak to my submission. I’m going to focus on the first point in my submission, the question of whether chasing further economic growth, in established industries, is desirable. Actually, I’ll leave you to make up your own minds on this, as I’d actually like to look behind the question at an underlying assumption: Whether economic growth is possible, and what is probably going to happen in the next few years?

I’ve brought a printed handout with me that has the graphics that I’m presenting here, and links to further resources that will allow you to get a more in depth picture than I’m able to present in 10 minutes.

A bit about me: I’m a chartered professional engineer with a background in built environment engineering, both as a designer and energy auditor, something I also teach at SIT to the 3rd year Environmental Management students. I’ve been involved in all manner of construction projects from a $5000 shower block refurbishment, to $1,000,000,000 dollar office and retail developments in the City of London, in various capacities from design engineer right through to team leader and site engineer. I’ve been involved in cutting edge ‘sustainable’ design, from passive solar schools through to an 1100kW ground source heat pump system. I’m also involved in small business throught the agency for Magicseal for Southland / Otago, and I am a founder of the Love Local charitable trust (http://www.lovelocal.org.nz).

Having decided to make Southland home in 2010, I want to see this region succeed to its full potential. I’ve spent a good proportion of the last 5 years or so reading in depth on the actual challenges we face in the coming decade, and I would like to present to you on those challenges to give you more context for the question I pose regarding economic growth. I’m being brief to stay within my allotted time, but I would welcome the opportunity to discuss in more detail any of the information that I present today. Please just call or email me. I want to help you understand this.

Nathan Surendran

BEng(Hons) CEng MCIBSE MEI

Consultant – Schema Consulting Limited

e: nathan@schemaconsulting.co.nz

m: 021 209 6286 p: 03 221 7487

l: linkedin.com/in/nathansurendran

Global Energy Consumption – a historic perspective

World Energy Consumption - last 200 yearsYou can see from the above chart how much we have expanded our consumption of energy. The chart below shows this process on a longer timescale. Not that the presupposition that many models still seem to make is that energy consumption growth can continue indefinitely (throught technological ‘advances’ such as nuclear).

Hubbert 10000 year view energy consumptionAffordable Oil :

Oil limits are a kind of limit we often hear concerns about. Being able to drill oil wells at all and refine the oil into products of many kinds requires a complex economy, which we’ve achieved. In fact, the big issue has been whether the extraction can be done in a sufficiently cost-effective manner that the whole economic system can be supported.

A major issue at this point is the fact that most of the easy-to-extract oil is already under development, so companies that want to develop new projects need to move on to locations that are more difficult and expensive to extract (Bloomberg, 2007). According to oil industry consultant Steven Kopits, the cost of one major category of oil production expenses increased by an average of 10.9% per year between 1999 and 2013. In the period between 1985 and 1999, these same expenses increased by 0.9% per year (Kopits, 2014) (Tverberg, 2014). This has led to a doubling of the capital required annually to maintain production at current levels. The situation of the economy becoming less and less efficient at producing oil is called diminishing returns. Paraphrased from:http://bit.ly/TOXvkL

diminishing returns on oil extraction - pyramid

Oil and Gas Resource Volume Versus Resource Quality. This graphic illustrates the relationship of in situ resource volumes to the distribution of conventional and unconventional accumulations, and the generally declining net energy and increasing difficulty of extraction as volumes increase lower in the pyramid. Source: http://bit.ly/1iqIAJa

Liquid Fuel for Transport’s correlation to Real GDP:

World - Oil, Energy, Real GDP changeWon’t we be able to borrow our way out of this?

While our system of debt has gone on for a very long time, we can’t expect it to continue in its current form forever. One thing that we don’t often think about is that our system or promises isn’t really backed by the way natural system we live in works. Our system of promises has a hidden agenda of growth. Nature doesn’t have a similar agenda of growth. In the natural order, the amount of fresh water stays pretty much the same. In fact, aquifers may deplete if we over-use them.

Nature, instead of having an agenda of growth, operates with an agenda of diminishing returns with respect to many types of resources. Our system is, in effect, becoming less and less efficient, as it takes more resources and more of people’s time, to produce the same end product, measured in terms of barrels of oil or gallons of water.

At some point, the amount of products we can actually produce starts shrinking, because workers cannot afford the ever-more-expensive products or because some essential “ingredient” (such as fresh water, or oil, or an imported metal) is not available. Since we live in a finite world, we know that at some point such a situation must occur. Paraphrased from: http://bit.ly/1kkKSFx

What is possibly coming?

As the globalised economy has become more complex and ever faster (for example, Just-in-Time logistics), the ability of the real economy to pick up and globally transmit supply-chain failure, and then contagion, has become greater and potentially more devastating in its impacts. In a more complex and interdependent economy, fewer failures are required to transmit cascading failure through socio-economic systems. In addition, we have normalised massive increases in the complex conditionality that underpins modern societies and our welfare. Thus we have problems seeing, never mind planning for such eventualities, while the risk of them occurring has increased significantly. The most powerful primary cause of such an event would be a large-scale financial shock initially centring on some of the most complex and trade central parts of the globalised economy.

The argument that a large-scale and globalised financial-banking-monetary crisis is likely arises from two sources. Firstly, from the outcome and management of credit over-expansion and global imbalances and the growing stresses in the Eurozone and global banking system. Secondly, from the manifest risk that we are at a peak in global oil production, and that affordable, real-time production will begin to decline in the next few years. In the latter case, the credit backing of fractional reserve banks, monetary systems and financial assets are fundamentally incompatible with energy constraints. It is argued that in the coming years there are multiple routes to a large-scale breakdown in the global financial system, comprising systemic banking collapses, monetary system failure, credit and financial asset vaporization. This breakdown, however and whenever it comes, is likely to be fast and disorderly and could overwhelm society’s ability to respond.Paraphrased from: http://bit.ly/1q7yS23

Why Isn’t Central Government Telling Us About these Difficulties?

The story outlined above is not an easy story to understand. It is possible that governments don’t fully understand today’s problems. It is easy to focus on one part of the story such as, “Shale oil extraction is rising in response to higher oil prices,” and miss the important rest of the story—the economy cannot really withstand high oil (and water and electricity and metals) prices. The economy tends to contract in response to a need to use so many resources in increasingly unproductive ways. We associate this contraction with recession.

Of course, if governments do understand the worrisome nature of our current situation, they may not want to say anything. It could make the situation worse, if citizens start a “run on the banks.” The other side of the issue is that if governments and citizens don’t understand the full story, they may inadvertently do things that will make the situation worse. They certainly won’t be looking long and hard at what collapse might look like in the current context and what can be done to mitigate its impacts. Paraphrased from: http://bit.ly/1kS6L2o

Summing up:

How do we respond to this information then? What am I asking by making this submission:

  • that you consider my presentation and the issues I’ve raised seriously. I’m happy to provide more background as needed.
  • That a view of the future based on maths, physics and common sense is used as the basis for strategic decision making r.e. economic development in Southland.
  • That you consider my involvement in whatever strategic planning is undertaken going forwards. I feel I have a lot to offer…
  • That you consider issuing a statement of support for the Wise Response appeal, which reads:

“As demand for growth exceeds earth’s physical limits, causing unprecedented risks, what knowledge and changes do we need to secure New Zealand’s future wellbeing?”

The petition to the House of Representatives reads:

“We the undersigned, request that the House:

(1) urge Government to undertake a National Risk Assessment of: Economic / Financial Security, Energy and Climate Security, Business Continuity, Ecological / Environmental Security, and Genuine Well-Being;

and:

(2) that from that Risk Assessment, develop and implement cross-party policies to avert any confirmed threats to future generations of New Zealanders.”

There are numerous unprecedented global trends and threats which, individually or in combination, could destabilize New Zealand’s future wellbeing. We believe it an ethical imperative that NZ be proactive in assessing and avoiding these, rather than risk being caught unprepared.

“Mo tatou, a mo ka uri a muri ake nei: For us and our children after us.”

What I’m not saying here is I’ve got all the answers. The policy response and the business development focus for this region in response to the challenges I’ve outlined will be varied and no one person had all the answers. My suggestions for other business areas in my submission are ones that I feel are probably good choices on the basis of the context I’ve presented today.

I’ll finish with this thought: If you don’t know where you’re going, you’ll end up there.
Q&A


As serendipity would have it, I happened upon a great piece in the NZ Herald that (more?) clearly reiterates what I’m trying to say:

Time to show leadership

It is astonishing that the certainty of this outlook for severely rising costs of energy has not been recognized widely. To the contrary, apparently prestigious institutions continue to ignore it. For example, recent publications by the National Intelligence Council and The Economist newspaper – both looking out to 2050 – make no provision for the recessionary effects of energy costs. Presumably, both have been captured by the same false assurances that are providing spurious comfort to political leaders.

The global economy will necessarily adjust to permanently high average prices and use of much less energy. When this happens, LAU and BAU will no longer be feasible. It will be essential for countries and communities to adapt and innovate human ways of living creatively so that they have much lower energy requirements, while also striving to provide greater wellbeing, satisfaction and happiness for citizens.

It is obvious that the sensible time to get on with this challenge is now so that the worst aspects of disruption can be avoided. This requires a calibre of leadership that we are not currently seeing. Such leadership will include encouragement of alternative energy systems, which will flourish after countries and communities have accepted the logic of transitioning to low-energy ways of living.

Climate change is not the only motivation

These conclusions are valid without any reference to either climate change or the further effects of oil and gas on environmental degradation. Although increasing numbers of people are very sensibly calling for far more active approaches to curbing greenhouse gas emissions, the conclusion that our present ways of life will become insupportable within a few years does not rest on environmental concerns or policies – the straight economics of energy costs alone will do it.

The compounding effects of more extreme climate change and wider ecological degradation come after that. Of course, if governments do summon up the courage to ensure that the full environmental and social costs of emissions are paid by emitters, this will further increase the costs of fossil fuels, and accelerate our passage towards a low-energy future.

My best guess is that this will happen as soon as a sequence of major weather events makes climate change undeniable. The forthcoming low-energy economy will emit less carbon, but this change will be too late and too little to avert very severe climate change.

Urgent action to reduce carbon emissions further remains as crucial as ever.

What does this mean for New Zealand?

Global recessions and disruptions driven by energy costs will have direct effects on New Zealand’s export markets, its sources of imported goods and services, and the international financial markets that New Zealand relies upon.

The risks to New Zealand’s international economy should be analysed thoroughly and managed with great care. There will also be new opportunities, especially for specialised exports, and these should also be thoroughly understood and acted upon with creative vigour.

The whole globalised corporate scene will change dramatically as the sectors and companies most exposed to oil and gas prices decline, while others that are less affected step forward.

It would be foolish for New Zealanders to assume that oil and gas produced from the future deep ocean wells and fracking sources that have been proposed will supply a buoyant global market. This will not be the case because when prices are high enough to justify this production, global market demand will be severely depressed by the same prices.

It is clear that current government policy has not recognised this fundamental point. New Zealand has a very distinctive energy endowment because such a high proportion of its total energy, including nearly all of its electricity, comes from renewable sources. This is primarily hydro electricity generation but also includes significant geothermal and wind generation.

In view of the global energy scenario presented here, this endowment has the huge benefit of already providing the high proportion of renewable energy sources that most other countries will struggle to achieve.

It is true that almost all of New Zealand’s transportation system is dependent on imported petroleum but this level of dependency could be reduced by vigorous introduction of electric vehicles charged from renewable sources. In this connection, the freeing of Manapouri hydro generation from contractual obligations would provide the needed capacity.

New Zealand cannot escape the global shift to a higher energy cost economy, but it is less dependent on oil and gas than most other developed countries due to the hydro and geothermal resources that already power a high proportion of our electricity generation.

Unless these resources are sold in the meantime – as the government has started doing – New Zealand will have an extremely valuable buffer during the times of change.

It is clear that New Zealand’s hydro and geothermal endowments are truly strategic assets that should be regarded as sovereign investments. It would seem that this has not been understood by either the generating companies or by the government and its advisers. This is because mainstream traditional commercial valuation techniques do not consider the strategic holding opportunities for assets and so greatly underestimate the value of these particular assets.

Established renewable energy sources are globally very rare. To sell some of these assets at values based on projections from short-term energy prices is to sell them at values that are ludicrously low relative to future values.

Such a decision is extraordinarily naïve and irresponsible and demonstrates both an alarming absence of strategic common sense and a lack of understanding of future economic realities.

Time for a change

It is inevitable that our global tomorrow will be changed hugely by rising energy costs. Countries and communities that accept this now have the opportunity to make necessary adjustments to maximize their wellbeing. If it is looked at in the right way, this process will be stimulating and rewarding over a lengthy period.

The current energy policy of the New Zealand government ignores the future global energy situation discussed here.

While it is already too late for some decisions, all further implementations of this policy should be stopped pending proper analysis and review of the implications for the wellbeing of future New Zealanders.

Dr Wayne Cartwright has postgraduate degrees in agricultural science and economics and has served 34 years in tertiary education – including 30 as a professor in the business schools at the Massey and Auckland Universities.

He has consulted widely in business management, international business and governance, and strategic responses to future insight. He has served on several corporate boards of directors.

He is a past chair of Sustainable Aotearoa New Zealand (SANZ) and has been on the Council for Socially Responsible Investment. He co-wrote and edited the 2009 SANZ publication Strong Sustainability for New Zealand: Principles and Scenarios.

The article is well worth reading in its entirety:http://bit.ly/1rlqJq8


 

To my second objection, regarding the editorial…

The original Southland Times article from Lauren Hayes (http://bit.ly/Wln52T) was a useful contribution to the discussion regarding hemp, unlike her editor’s subsequent misinformed rant about artificial milk and mythology rather than fact based objections to growing hemp (http://bit.ly/WlooyU)

I’ll deal with the 2 ‘obvious problems’ listed in their editorial in turn:

“Firstly, there are many people who, their brains turned mushy by smoking too much marijuana, will be unable to grasp the difference between hemp and their weed of preference. They will break into farmers’ fields to raid the crop and get sick from smoking the wrong dope. Dopes.”

They assert that people will ‘get sick from smoking the wrong dope’: not so. In fact, the predominant psychoactive ingredient in industrial hemp, CBD, actually counters the psychoactive effects of THC:

“As William M. Pierce Jr., Ph.D., Associate Professor of Pharmacology and Toxicology at the University of Louisville School of Medicine notes, “The THC levels in industrial hemp are so low that no one can get high from smoking it. Moreover, industrial hemp, while low in THC, is high in another kind of cannabinoid, CBD, which counteracts THC’s psychoactivity.” (Source: http://bit.ly/WloCGg)

CBD is actually a highly useful medicinal compound in its own right, and has multiple beneficial uses, including, but not limited to treatment of schizophrenia and epilepsy. A US patent filed by “The United States Of America As Represented By The Department Of Health And Human Services.” lists a long list of beneficial therapeutic effects, thus:

The patent mentions cannabidiol’s ability as an antiepileptic, to lower intraocular pressure in the treatment of glaucoma, lack of toxicity or serious side effects in large acute doses, its neuroprotectant properties, its ability to prevent neurotoxicity mediated by NMDA, AMPA, or kainate receptors; its ability to attenuate glutamate toxicity, its ability to protect against cellular damage, its ability to protect brains from ischemic damage, its anxiolytic effect, and its superior antioxidant activity which can be used in the prophylaxis and treatment of oxidation associated diseases.[59]

“Oxidative associated diseases include, without limitation, free radical associated diseases, such as ischemia, ischemic reperfusion injury, inflammatory diseases, systemic lupus erythematosus, myocardial ischemia or infarction, cerebrovascular accidents (such as a thromboembolic or hemorrhagic stroke) that can lead to ischemia or an infarct in the brain, operative ischemia, traumatic hemorrhage (for example a hypovolemic stroke that can lead to CNS hypoxia or anoxia), spinal cord trauma, Down’s syndrome, Crohn’s disease, autoimmune diseases (e.g. rheumatoid arthritis or diabetes), cataract formation, uveitis, emphysema, gastric ulcers, oxygen toxicity, neoplasia, undesired cellular apoptosis, radiation sickness, and others. The present invention is believed to be particularly beneficial in the treatment of oxidative associated diseases of the CNS, because of the ability of the cannabinoids to cross the blood brain barrier and exert their antioxidant effects in the brain. In particular embodiments, the pharmaceutical composition of the present invention is used for preventing, arresting, or treating neurological damage in Parkinson’s disease, Alzheimer’s disease and HIV dementia; autoimmune neurodegeneration of the type that can occur in encephalitis, and hypoxic or anoxic neuronal damage that can result from apnea, respiratory arrest or cardiac arrest, and anoxia caused by drowning, brain surgery or trauma (such as concussion or spinal cord shock).”[59]

(Source: http://bit.ly/1pgp1BN)

And the second piece of misinformation:

“Secondly, hemp and marijuana look very similar. So the less dopey dope-growers will realise that hemp makes ideal camouflage for their own crop – which they will seek to hide among the legitimate crops.”

A disturbing lack of basic horticultural knowledge from editorial staff in a predominantly agricultural region. Here’s the reality:

“Hemp is grown quite differently from marijuana. Moreover, it is harvested at a different time than marijuana. Finally, cross-pollination between hemp and marijuana plants would significantly reduce the potency of the marijuana plants.
Hemp grown for fiber is planted in narrow row spacing (4 inches apart). Branching is discouraged, and plants are not allowed to flower. The stems are kept small by the high density and foliage develops only on the top. Hemp plants crowd out weeds and other hemp plants not equal to the competition. [37]

Marijuana plants, on the contrary, are spaced widely to encourage branching, and the flower is the harvested product. Marijuana is a horticultural crop planted in wide spacing to minimize stand competition and promote flower production. It branches thickly like a Christmas tree. In contrast, hemp selected for fiber has only a few branches.

What about seed producers who space their plants widely? Where seed is the harvested product, whether as reproduction seed or oilseed, purity is critical to marketability. The mixing of off-type genotypes would be scrupulously avoided in seed production fields.

Breeders and producers of sweet corn go to great lengths to isolate their crops from the pollen of field corn. The same applies to hemp and marijuana. People who grow strains of Cannabis for smoking try to avoid pollination of the flowers. The superior quality material is obtained from seedless plants, the so-called “sinsemilla.”

Hemp fields, in fact, could be a deterrent to marijuana growers. A strong case can be made that the best way to reduce the THC level of marijuana grown outdoors would be to grow industrial hemp near it. An experiment in Russia found that hemp pollen could travel 12 kilometers. This would mean that a hemp field would create a zone with a 12-kilometer radius within which no marijuana grower would want to establish a crop.

The reciprocal also applies. Growers of hemp seed would not want Cannabis of an “off type” (i.e., not the intended genetic type) mixing its pollen with their flowers. The isolation of genotypes is a common procedure used by the seed industry to preserve the genetic integrity of varieties. Valued strains are created by plant breeding, at substantial expense. Marijuana pollen would destroy this value.

There is another reason that marijuana growers would be unlikely to plant their crop in a hemp field. All countries that have recently begun to recommercialize hemp operate under a permit system whereby the farmer must let the local police know which field is being planted in hemp. Would a marijuana grower decide to plant his or her crop in an area high on the police radar screen and subject to monitoring without notice?

Ironically, another fiber crop, kenaf, grown in the South, resembles Cannabis in its leaf morphology so closely that it is often mistaken for marijuana. Growers report frequent incidents of kids stealing kenaf that they have taken for marijuana. Since kenaf would not cross-pollinate with Cannabis, and has a longer growing season, kenaf fields would actually be a better hiding place for marijuana than would hemp fields.”

Source for the above: http://bit.ly/WloCGg

I must admit, I found the last paragraph of the editorial fascinating:
“But here is no need to panic. Armageddon is a little way off yet. And the risks are no reason to turn our backs on meat and dairy industries. We should make hay while the sun shines.”

So on the one hand, ‘don’t panic’, on the other hand, ‘Armageddon is (only?) a little way off yet’… Classic doublethink, and no less than I’d expect from the mainstream media’s proles, seemingly ignorant in their complicity to the slow motion disaster (of trying to grow our way out of problems associated with too much growth) going on around them.

Perhaps the editorial staff should try smoking some industrial hemp? It may lower their anxiety levels, and help them to think clearly about the real issues we’re facing as a society, which it is their (IMHO) duty as the gatekeepers of popular information to present in clear and helpful news for the edification of the general population… I’m aware that some may differ on that interpretation of their role.

For the record, I’ve posted this comment to my blog as well, here: http://bit.ly/1pgtLaG, where it retains its intended formatting, and the vagaries of editorial policy cannot reach….

I have also sent this as a formal complaint to the editor as an email, prior to my making a formal complaint to the Press Council via info@presscouncil.org.nz

Nathan Surendran

Leave a comment

Filed under Uncategorized

Limits to Growth – 42 years on

In response to a recent observation I encountered, that we talked about all this 40 plus years ago, and it was portrayed as urgent then, I’ve heard it all before…

I’m choosing to focus on the most well known set of predictions from about 42 years ago, made in the book ‘Limits to Growth’. For its 40th anniversary, work was done revisiting its predictions, and assessing if its predictions were as wildly inaccurate as they were often portrayed to be. Here’s  a summary of that work:

Looking Back on the Limits of Growth

Recent research supports the conclusions of a controversial environmental study released 40 years ago: The world is on track for disaster. So says Australian physicist Graham Turner, who revisited perhaps the most groundbreaking academic work of the 1970s, The Limits to Growth.

“There is a very clear warning bell being rung here. We are not on a sustainable trajectory.”Written by MIT researchers for an international think tank, the Club of Rome, the study used computers to model several possible future scenarios. The business-as-usual scenario estimated that if human beings continued to consume more than nature was capable of providing, global economic collapse and precipitous population decline could occur by 2030.

However, the study also noted that unlimited economic growth was possible, if governments forged policies and invested in technologies to regulate the expansion of humanity’s ecological footprint. Prominent economists disagreed with the report’s methodology and conclusions. Yale’s Henry Wallich opposed active intervention, declaring that limiting economic growth too soon would be “consigning billions to permanent poverty.”

Turner compared real-world data from 1970 to 2000 with the business-as-usual scenario. He found the predictions nearly matched the facts. “There is a very clear warning bell being rung here,” he says. “We are not on a sustainable trajectory.”

* * *

Source: http://bit.ly/W3ah0L

 

And from the ‘Our Finite World’ blog, which features regularly in my attempts to summarise what’s going on:

It seems to me that we may be reaching “Limits to Growth,” as foretold in the book by the same name in 1972. The book modeled the consequences of a rapidly growing world population and finite resource supplies. A wide range of scenarios was tested, but the result in nearly all scenarios was overshoot and collapse, with the timing of collapse typically being in the 2010 to 2075 time period.

The authors of Limits to Growth did not model the full interactions of the system. One element omitted was how debt would impact the system. Another item omitted was how prices for oil and other resources would affect the system.

If a person follows through the expected effects of high oil prices and debt, the financial system would appear to be the most vulnerable part of the system. The financial system would also appear to be what telegraphs problems from one part of the system to another. Unless a solution is found, failure of the financial system could ultimately bring down the whole system.

Background

Newspapers print endless articles about the need for economic growth, and the need for return to economic growth. But if economic growth really takes resources of some sort–coal, or oil or copper, or fresh water to produce goods and services–it stands to reason that at some point, the resources needed for economic growth will run short. This is especially true for resources that are used up when they are burned, like coal and oil.

Besides the issue of inadequate resources, growing pollution can also interfere with economic growth. As the world is filled with more people, and resources become shorter in supply, pollution becomes more of an issue.

Logically, at some point we can expect to run into limits that are impossible to get around. One of these limits may be inadequate funds for investment in extraction of resources.

…In my view, what has happened since 2003-2004 is very similar to the effect a person might expect from Liebig’s Law of the Minimum, if oil is a necessary component of the economy, and high oil price signals that too little oil is reaching the system. In agricultural science, Liebig’s Law of the Minimum states that the amount of plant growth is governed not by the total resource available, but by the amount of input of the needed resource in least supply (for example, nitrogen, phosphorous, or potassium). In other words, it isn’t possible to substitute one type of fertilizer for another; similarly, it isn’t possible to substitute one energy product for another in the short term. Instead output contracts, if oil is too high-priced. In a way, this contraction might be seen as a dress rehearsal for the ultimate contraction which Limits to Growth models have suggested will eventually arrive.

I am sure that some would say that oil supply would need to actually decline, for there to be a problem. Since the Limits to Growth model does not look at resource prices, it does not consider this detail. It would seem to me that by the time world oil supply actually declines, the world may already be in a major recession, which does not allow prices to rise high enough to keep production up.

Connection with Debt

What relationship does debt have to the economy?

1. Economic growth enables debt, because in a growing economy, the greater amount of resources available at a later date make it much easier to repay debt with interest. I have shown an illustration of this several times.

The above relationship does not mean that debt would disappear completely in a shrinking economy. There would still be some situations where debt would be used, such as in short term loans to facilitate trade, and in situations where high rates of return can be assured.

2. Additional debt enables GDP to grow more rapidly than it otherwise would, because GDP is a gross measure–a measure of what an economy produces and sells–and having more debt helps in two respects:

a. Additional debt helps the company extracting the resource or doing the manufacturing, by giving the company additional funds to work with–to purchase plant and equipment, or to hire consultants. It doesn’t have to wait and only use accumulated profits to fund new ventures.

b. Additional debt helps the potential buyer of goods, because the buyer can pay for the new item purchased (automobile, refrigerator, or house, for example) over a period of years while using the new product.

But higher oil prices tend to be associated with higher food prices. (See Figure 6, below.) When prices of oil and food rise, consumers (except for those making more money because of higher oil and food prices) tend to cut back on discretionary spending. This cut-back in spending leads to lay-offs and recession in discretionary segments of the economy. Some laid-off workers default on their debts,  and businesses scale back their plans for expansion, because of the “bad economy”.  As a result, they too need less debt.

So debt works well in a growing economy, but once an economy hits high oil prices and recession, debt works much less well. An economy has positive feed back loops from debt in a growing economy, but once oil limits (in terms of high prices) start to hit, feedback loops work in reverse–consumers and producers see less need for debt, and in fact, may default on past loans. Shrinking debt levels make it increasingly difficult for GDP to grow.

The following excerpt has some interesting observations regarding the omission of debt on the model’s predictive power:

Impact of Omission of Debt and Prices in the Limits to Growth Model

Figure 1 clearly shows a tendency toward overshoot and collapse, based on the Limits to Growth model as it was originally created. The original model doesn’t consider the impact of debt or of resource prices. The omission of debt means that the model doesn’t consider the possibility of moving from an “increasing debt” situation to a “decreasing debt” situation. If such a change takes place about the time resource limits hit, a person would expect sharper peaks and faster declines to the modeled variables.

The omission of resource prices means that the model doesn’t pick up the interconnections between high prices for one resource, and a cut back on demand for other resources. We discovered during the 2008-2009 recession that electricity demand dropped at the same time as oil demand. If financial interconnections cause a shortage of one resource to lead to reduced demand for other resources, this may mean that substitution will not will work as well as some hope.

Nothing happens overnight with the world economy, so changes are likely to take place over a period of years, rather than all at once. We can’t know exactly what the future will bring, but the handwriting on the wall is worrisome.

Source: http://bit.ly/ofwl2gupdate

I hope I’ve shown that whilst there are some criticisms of the ‘Limits to Growth’ narrative, it’s basic predictions seem to be holding up, as the relentless maths of growth in a finite system place limits on our future economic expansion at best, and quite possibly lead to sharp declines in economic activity in the not too distant future.

More from the 40 year update on the original Limits to Growth here: http://www.clubofrome.org/?p=326

Particularly this introduction to the book ‘Limits to Growth Revisited’ is a good overview of the history: http://bit.ly/1sTcOFy

 

Leave a comment

Filed under Uncategorized

Speaking to Submission on Draft VS Business Plan 2014 – Nathan Surendran’s Presentation Notes:

(Original Submission – see second half of this post: http://bit.ly/1jHEBDi)

I’d like to thank you for this opportunity to speak to my submission. I’m going to focus on the first point in my submission, the question of whether chasing further economic growth, in established industries, is desirable. Actually, I’ll leave you to make up your own minds on this, as I’d actually like to look behind the question at an underlying assumption: Whether economic growth is possible, and what is probably going to happen in the next few years?

I’ve brought a printed handout with me that has the graphics that I’m presenting here, and links to further resources that will allow you to get a more in depth picture than I’m able to present in 10 minutes.

A bit about me: I’m a chartered professional engineer with a background in built environment engineering, both as a designer and energy auditor, something I also teach at SIT to the 3rd year Environmental Management students. I’ve been involved in all manner of construction projects from a $5000 shower block refurbishment, to $1,000,000,000 dollar office and retail developments in the City of London, in various capacities from design engineer right through to team leader and site engineer. I’ve been involved in cutting edge ‘sustainable’ design, from passive solar schools through to an 1100kW ground source heat pump system. I’m also involved in small business throught the agency for Magicseal for Southland / Otago, and I am a founder of the Love Local charitable trust (http://www.lovelocal.org.nz).

Having decided to make Southland home in 2010, I want to see this region succeed to its full potential. I’ve spent a good proportion of the last 5 years or so reading in depth on the actual challenges we face in the coming decade, and I would like to present to you on those challenges to give you more context for the question I pose regarding economic growth. I’m being brief to stay within my allotted time, but I would welcome the opportunity to discuss in more detail any of the information that I present today. Please just call or email me. I want to help you understand this.

Nathan Surendran

BEng(Hons) CEng MCIBSE MEI

Consultant – Schema Consulting Limited

e: nathan@schemaconsulting.co.nz

m: 021 209 6286  p: 03 221 7487

l: linkedin.com/in/nathansurendran

 

Global Energy Consumption – a historic perspective

World Energy Consumption - last 200 years

You can see from the above chart how much we have expanded our consumption of energy. The chart below shows this process on a longer timescale. Not that the presupposition that many models still seem to make is that energy consumption growth can continue indefinitely (throught technological ‘advances’ such as nuclear).

Hubbert 10000 year view energy consumption

Affordable Oil :

Oil limits are a kind of limit we often hear concerns about. Being able to drill oil wells at all and refine the oil into products of many kinds requires a complex economy, which we’ve achieved. In fact, the big issue has been whether the extraction can be done in a sufficiently cost-effective manner that the whole economic system can be supported.

A major issue at this point is the fact that most of the easy-to-extract oil is already under development, so companies that want to develop new projects need to move on to locations that are more difficult and expensive to extract (Bloomberg, 2007). According to oil industry consultant Steven Kopits, the cost of one major category of oil production expenses increased by an average of 10.9% per year between 1999 and 2013. In the period between 1985 and 1999, these same expenses increased by 0.9% per year (Kopits, 2014) (Tverberg, 2014). This has led to a doubling of the capital required annually to maintain production at current levels. The situation of the economy becoming less and less efficient at producing oil is called diminishing returns. Paraphrased from: http://bit.ly/TOXvkL

diminishing returns on oil extraction - pyramid

Oil and Gas Resource Volume Versus Resource Quality. This graphic illustrates the relationship of in situ resource volumes to the distribution of conventional and unconventional accumulations, and the generally declining net energy and increasing difficulty of extraction as volumes increase lower in the pyramid. Source: http://bit.ly/1iqIAJa

 

Liquid Fuel for Transport’s correlation to Real GDP:

World - Oil, Energy, Real GDP change

Won’t we be able to borrow our way out of this?

While our system of debt has gone on for a very long time, we can’t expect it to continue in its current form forever. One thing that we don’t often think about is that our system or promises isn’t really backed by the way natural system we live in works. Our system of promises has a hidden agenda of growth. Nature doesn’t  have a similar agenda of growth. In the natural order, the amount of fresh water stays pretty much the same. In fact, aquifers may deplete if we over-use them.

Nature, instead of having an agenda of growth, operates with an agenda of diminishing returns with respect to many types of resources. Our system is, in effect, becoming less and less efficient, as it takes more resources and more of people’s time, to produce the same end product, measured in terms of barrels of oil or gallons of water.

At some point, the amount of products we can actually produce starts shrinking, because workers cannot afford the ever-more-expensive products or because some essential “ingredient” (such as fresh water, or oil, or an imported metal) is not available. Since we live in a finite world, we know that at some point such a situation must occur. Paraphrased from: http://bit.ly/1kkKSFx

What is possibly coming?

As the globalised economy has become more complex and ever faster (for example, Just-in-Time logistics), the ability of the real economy to pick up and globally transmit supply-chain failure, and then  contagion,  has  become  greater  and  potentially  more  devastating  in  its  impacts.  In  a  more complex  and  interdependent  economy,  fewer  failures  are  required  to  transmit  cascading  failure through  socio-economic  systems.  In  addition,  we  have  normalised  massive  increases  in  the complex conditionality that underpins modern societies and our welfare. Thus we have problems seeing, never mind planning for such eventualities, while the risk of them occurring has increased significantly. The most powerful primary cause of such an event would be a large-scale financial shock initially  centring  on  some  of  the  most  complex  and  trade  central  parts  of  the  globalised economy.

The  argument  that  a  large-scale  and  globalised  financial-banking-monetary  crisis is  likely  arises from two sources. Firstly, from the outcome and management of credit over-expansion and global imbalances and the growing stresses in the Eurozone and global banking system. Secondly, from the  manifest  risk  that  we  are  at  a  peak  in  global  oil  production,  and  that  affordable,  real-time production  will  begin  to  decline  in  the  next  few  years.    In  the  latter  case,  the  credit  backing  of fractional  reserve  banks,  monetary  systems  and  financial  assets  are  fundamentally  incompatible with energy constraints. It is argued that in the coming years there are multiple routes to a large-scale breakdown in the global financial system, comprising systemic banking collapses, monetary system failure, credit and financial asset vaporization. This breakdown, however and whenever it comes, is likely to be fast and disorderly and could overwhelm society’s ability to respond. Paraphrased from:  http://bit.ly/1q7yS23

 

Why Isn’t Central Government Telling Us About these Difficulties?

The story outlined above is not an easy story to understand. It is possible that governments don’t fully understand today’s problems. It is easy to focus on one part of the story such as, “Shale oil extraction is rising in response to higher oil prices,” and miss the important rest of the story—the economy cannot really withstand high oil (and water and electricity and metals) prices. The economy tends to contract in response to a need to use so many resources in increasingly unproductive ways. We associate this contraction with recession.

Of course, if governments do understand the worrisome nature of our current situation, they may not want to say anything. It could make the situation worse, if citizens start a “run on the banks.” The other side of the issue is that if governments and citizens don’t understand the full story, they may inadvertently do things that will make the situation worse. They certainly won’t be looking long and hard at what collapse might look like in the current context and what can be done to mitigate its impacts. Paraphrased from: http://bit.ly/1kS6L2o

 

Summing up:

How do we respond to this information then? What am I asking by making this submission:

  • that you consider my presentation and the issues I’ve raised seriously. I’m happy to provide more background as needed.
  • That a view of the future based on maths, physics and common sense is used as the basis for strategic decision making r.e. economic development in Southland.
  • That you consider my involvement in whatever strategic planning is undertaken going forwards. I feel I have a lot to offer…
  • That you consider issuing a statement of support for the Wise Response appeal, which reads:

“As demand for growth exceeds earth’s physical limits, causing unprecedented risks, what knowledge and changes do we need to secure New Zealand’s future wellbeing?”

The petition to the House of Representatives reads:

“We the undersigned, request that the House:

(1) urge Government to undertake a National Risk Assessment of: Economic / Financial Security, Energy and Climate Security, Business Continuity, Ecological / Environmental Security, and Genuine Well-Being;

and:

(2) that from that Risk Assessment, develop and implement cross-party policies to avert any confirmed threats to future generations of New Zealanders.”

There are numerous unprecedented global trends and threats which, individually or in combination, could destabilize New Zealand’s future wellbeing. We believe it an ethical imperative that NZ be proactive in assessing and avoiding these, rather than risk being caught unprepared.

“Mo tatou, a mo ka uri a muri ake nei: For us and our children after us.”

What I’m not saying here is I’ve got all the answers. The policy response and the business development focus for this region in response to the challenges I’ve outlined will be varied and no one person had all the answers. My suggestions for other business areas in my submission are ones that I feel are probably good choices on the basis of the context I’ve presented today.

 

I’ll finish with this thought: If you don’t know where you’re going, you’ll end up there.
Q&A

Leave a comment

Filed under Uncategorized

Converging Energy Crises – And How our Current Situation Differs from the Past

Convergin Energy Crises – an overview from Actuary Gail Tverberg.

Our Finite World

At the Age of Limits Conference, I gave a talk called Converging Crises (PDF), talking about the crises facing us as we reach energy limits. In this post, I discuss some highlights from a fairly long talk.

A related topic is how our current situation is different from past collapses. John Michael Greer talked about prior collapses, but because both of our talks were late in the conference and because I was leaving to catch a plane, we never had a chance to discuss how “this time is different.” To fill this gap, I have included some comments on this subject at the end of this post.

The Nature of our Current Crisis

Figure 1 Figure 1

The first three crises are the basic ones: population growth, resource depletion, and environmental degradation. The other crises are not as basic, but still may act to bring the system down.

View original post 3,062 more words

Leave a comment

Filed under Uncategorized