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

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