The Oil Drum writers: Where are they now?

The Last Post

The Oil Drum (TOD) was an internet energy phenomenon that ran for over eight years from April 2005 to September 2013. The site was founded by Prof. Goose (also known as Professor Kyle Saunders of Colorado State University) and Heading Out (also known as Professor Dave Summers formerly of the Missouri University of Science and Technology).

The site took off with the advent of Hurricane Rita in September 2005 and resulted in the first 200+ comment event, indicating that there was demand for a site where concerned citizens could gather round a camp fire to discuss events impacting their energy supplies and ultimately, their well being. In eight years, >960,000 comments have been posted. Two other energy linked disasters, the Deepwater Horizon blowout and the Fukushima Daiichi reactor melt downs would see readership soar to >75,000 unique visits per day.

These pages have hosted over 7,500 articles covering every aspect of the global energy system. It was not unusual for a post to attract over 600 comments, many of which were well informed and contained charts and links to other internet sources. The site would become known for a uniquely high level of discourse where armchair analysts of all stripes added their knowledge to threads in a courteous, and ultimately pro-social way that energy experts at hedge funds, corporations or universities might not have the freedom to do. It is this emergent property of smart people sharing knowledge on a critical topic to humanity's future that will be missed.

The site was built on twin backbones that would often pull the readership in opposite directions. Drumbeats, edited by Leanan (who remains anonymous to this day) provided daily energy news digest and a forum for debate. And articles, written by a legion of volunteer writers, that strove to provide a more quantitative analysis of global energy supplies and the political, social and economic events that lay behind them. All the content would not have been possible without the tireless efforts of Super G, our site engineer, who maintained and updated software and hardware as the site grew and evolved for over eight years on a voluntary basis.

In the course of 2013, a decision was made to archive The Oil Drum and the main purpose of this Last Post is to provide some direction to new and future readers of the vast content it contains. The main contributors are listed below along with links to where their writings can be now be found. If you are looking for content there are two main options. The first is to look for author specific content where clicking on the live hyper linked name of the contributor will take you to a page giving access to all the content produced by that author. The second option is to use the Advanced Search facility at the top left of this page. Simply enter a few key words and this will return a page of the most relevant articles.


Editorial board

Arthur Berman (aeberman) Arthur E. Berman is a petroleum geologist with 35 years of oil and gas industry experience. He worked 20 years for Amoco (now BP) and 15 years as consulting geologist. He gives keynote addresses for energy conferences, boards of directors and professional societies. He has been interviewed about oil and gas topics on CBS, CNBC, CNN, Platt’s Energy Week, BNN, Bloomberg, Platt’s, Financial Times, The Wall Street Journal, Rolling Stone and The New York Times.

He was a managing editor and frequent contributor of theoildrum.com, and an associate editor of the AAPG Bulletin. He is a Director of the Association for the Study of Peak Oil, and has served on the boards of directors of The Houston Geological Society and The Society of Independent Professional Earth Scientists. He has published more than 100 articles on petroleum geology. He has done expert witness and research work on several oil and gas trial and utility commission hearings.

He has an M.S. (Geology) from the Colorado School of Mines and a B.A. (History) from Amherst College.

Nate Hagens is a well-known speaker on the big picture related to the global macroeconomy. Nate's presentations address opportunities and constraints we face in the transition away from growth based economies as fossil fuels become more costly. On the supply side, Nate focuses on biophysical economics (net energy) and the interrelationship between money and natural resources. On the demand side, Nate addresses the behavioral underpinnings to conspicuous consumption and offers suggestions on how individuals and society might better adapt to the end of growth. He will be writing at themonkeytrap.us.

Nate has appeared on PBS, BBC, ABC, NPR, and has lectured around the world. He holds a Masters Degree in Finance from the University of Chicago and a PhD in Natural Resources from the University of Vermont. Previously Nate was President of Sanctuary Asset Management and a Vice President at the investment firms Salomon Brothers and Lehman Brothers. Nate is the former President of the Institute for the Study of Energy and Our Future (non-profit publisher of The Oil Drum), is current US Director of the Institute for Integrated Economic Research, and serves on the Board of the Post Carbon Institute. Nate also served as the lead editor of the Oil Drum for several years.

Rembrandt Koppelaar has since 2010 been a Research Associate at the Swiss Institute for Integrated Economic Research (IIER), where he works on modelling of costs of resource and energy flows. Since June 2012 he combines this with a PhD research position at Imperial College London, to contribute to a spatial simulation of the resource flows of an economy at a micro-level using agent-based approaches. He joined the Oil Drum in 2006 first as a contributor and later as an editor, triggering by his concern in oil depletion. An interest that also led him to establish and become President of the Association for the Study of Peak Oil & Gas Netherlands from 2006 to 2010. He is author of the book “De Permanente Oliecrisis” discussing the end of cheap oil and its consequences (Dutch language, Nieuw Amsterdam publishers, 2008). Rembrandt holds a BSc and MSc in economics from Wageningen University, the Netherlands.

Brian Maschhoff (JoulesBurn) earned a B.S. in Chemistry from the University of New Mexico and a Ph.D in Chemistry from the University of Arizona. He has worked at several academic institutions and government laboratories, and currently engages in a wide variety of scientific and technical pursuits including web-based education, data visualization, and research on salmon recovery. His research on the oil fields of Saudi Arabia is also posted at Satellite o'er the Desert. He also blogs at Picojoule, and he might eventually be found @joulesburn on Twitter.




Euan Mearns has B.Sc. and Ph.D. degrees in geology from The University of Aberdeen. Following an academic career in Norway and a business career in Scotland I took time off work in 2005 to help care for two sons and two dogs and to allow my wife's career to blossom. In 2006, wondering why the oil price and the value of my oil stocks kept going up I stumbled upon the The Oil Drum that provided unique insight, at that time, into The Earth energy system. Feeling the need to put something back I submitted a couple of articles and have since written roughly 100 posts and hosted many guest posts from worthy authors.

In 2009 I was appointed as Honorary Research Fellow at The University of Aberdeen and teach occasional courses there. For the last 7 years, writing and editing articles for The Oil Drum has consumed a fair portion of my time, but I have in return learned a huge amount. I also continue to work as a consultant for the oil industry. The focus of my interest is the importance of energy to society, society's response to the infrastructure and secondary impacts of energy provision and the political response. I plan to continue writing about Energy, Environment and Policy at Energy Matters.

New post, 8th October: UK North Sea Oil Production Decline
New post 18th November: Marcellus shale gas Bradford Co Pennsylvania: production history and declines
New post, 28th November: What is the real cost of shale gas?
New post, 9th December: OPEC oil production update July 2013
New post, 18th December: OECD oil production update July 2013
New post, 3rd January: Global Oil Supply Update July 2013
New post, 6th January: The Primary Energy Tale of Two Continents

Paul Sears was born in the UK, and did a Ph.D. in chemistry at Cambridge. Since first coming to Canada on a post-doctoral fellowship at the University of Western Ontario in 1973, he has worked at the University of Toronto and in the Canadian Federal Government in Ottawa. Most of his work since the mid 1970s has been on the supply and use of energy in one form or another. His interest in the limitations to oil supply dates back to about 1962, when he was at school watching a promotional film from an oil company. The subject of the film was oil exploration, and this caused him to wonder about the dependence of our society on oil and the limits to supply. Other interests are canoeing, kayaking, skiing, hiking, camping, keeping planted aquaria and learning Mandarin Chinese. Sadly, Paul Sears passed away on September 13, 2012. You can read an obituary here.

Dave Summers who writes under the pen name, "Heading Out", comes from a family that for at least nine generations has been coal miners, and he started his working life, as an Indentured Apprentice, in 1961 shoveling coal on one of the last hand-won coal faces in the UK at Seghill, after a few weeks supplying that face with the help of a pit pony. With bachelor’s and doctoral degrees from Leeds University in the UK he moved to Rolla, Missouri and Missouri University of Science and Technology (then UMR) in 1968. He was named Curators’ Professor of Mining Engineering in 1980 and for many years directed the Rock Mechanics and Explosives Research Center at MS&T. His main work has been in the developing use of high-pressure water for cutting, cleaning and demilitarization. As one of the quiet revolutions that has crept into industry during his career, his research group worked in nuclear cleanup, rocket motors, and surgical applications as well as developing tools to cut, drill and mine more mundane rock, coal and metals. The team carved the half-scale Stonehenge out of Georgia granite, using only water, and later cut Edwina Sandy’s Millennium Arch from Missouri granite, both of which are on the MS&T campus. They also used the technique in a demonstration excavation that resulted in creating the OmniMax theater under the Gateway Arch in St Louis.

He retired from the University, and was named Emeritus in 2010, and lives quietly with his wife Barbara, with occasional commutes to visit their children, located on the two coasts very far from rural America.

In 2004 he began to write a blog, and in 2005 teamed with Kyle Saunders to jointly found The Oil Drum, a site for “discussions on energy and our future.” He now writes on energy, the applications of waterjets, a little on the use of the 3D modeling program Poser, and occasionally on climate matters. His blog, where the Tech Talks continue, can be found at Bit Tooth Energy. He again thanks all those who have contributed to The Oil Drum over the years and wishes them joy and prosperity in their futures!

Dr. David Archibold Summers has written numerous articles, a textbook, Waterjetting Technology, and jointly holds several patents, the last two of which have been licensed and deal a) with the use of waterjets to remove skin cancer and b) for high speed drilling of small holes through the earth.

Gail Tverberg (Gail the Actuary) became interested in resource limits and how these affect insurance companies and the economy more generally in 2005. She began writing about this issue while working as a property-casualty actuarial consultant at Towers Watson. In 2007, she took early retirement to work specifically on the issue of oil limits.

Between 2007 and its suspension in 2013, Gail worked as a contributor and editor at TheOilDrum.com. She also started her own blog, OurFiniteWorld.com, where she continues to write on a regular basis. Her writings include Oil Supply Limits and the Continuing Financial Crisis, published in the peer-reviewed journal Energy in January 2012. She has spoken at at many conferences on subjects related to oil limits, including both academic and actuarial conferences. She now plans to write a book, tentatively called "Discontinuity Ahead: How Oil Limits Affect the Economy."

Gail worked for CNA Insurance prior to joining Tillinghast (which eventually became part of Towers Watson) in 1981. She has a BA in Mathematics from St. Olaf College and an MS in Mathematics from the University of Illinois, Chicago. She is a fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries.

Her Twitter feed is @gailtheactuary.

Chris Vernon originally graduated with a masters degree in computational physics before working for ten years in the field of mobile telecoms specialising in radio network architecture and off-grid power systems in emerging markets. He subsequently returned to university to take an MSc in Earth system science and a PhD in glaciology focusing on the mass balance of the Greenland ice sheet. Chris is a trustee at the Centre for Sustainable Energy, works for the UK Met Office and maintains a personal web page.







Selected contributors

Big Gav studied Engineering at the University of Western Australia in Perth. Since then he has travelled widely and worked in the oil and gas, power generation, defence, technology and banking industries. He has been blogging about peak oil for almost 3 years at Peak Energy (Australia) and is probably the most prolific example of a techno-optimist in the peak oil world. He may be alone in thinking that peak oil represents a great opportunity to switch to a clean energy based world economy, rather than the trigger for the end of industrial civilisation.

Jason Bradford is currently a Farm Manager in Corvallis, OR and a Managing Partner for a sustainable farmland fund, Farmland LP. Most of his writing for The Oil Drum occurred while he lived in Willits, CA, where he was instrumental in the founding of Willits Economic Localization, hosted a radio program called "The Reality Report," and was a board member of the local Renewable Energy Development Institute. He also founded and ran a small farm at a local elementary school with a lot of community support and the backing of The Post Carbon Institute, where he is currently a board member. His brief but enjoyable academic career began at Washington University in St. Louis and the Missouri Botanical Garden (MBG), where he taught courses in Ecology and from which he received a doctorate in Evolution and Population Biology in 2000. After graduation he was hired by the Center for Conservation and Sustainable Development at MBG, and between 2001 and 2004 secured grants from the National Science Foundation and the National Geographic Society for multi-disciplinary research on issues related to species extinction and ecosystem function. His "aha moment" came during this research period where the connections between environmental decline, resource consumption, economic growth, belief systems and institutional inertia led to a dramatic change in the course of his life's work.

He continues to blog at Farmland LP.

David Murphy is an Assistant Professor in the Geography Department and an Associate of the Institute for the Study of the Environment, Sustainability, and Energy, both at Northern Illinois University. He serves also as an Environmental Policy Analyst for the Environmental Science Division at Argonne National Laboratory. Dr. Murphy’s research focuses on the intersection of energy, economics, and the environment. Recently, his work has focused on estimating how the extraction of natural gas in the Marcellus Shale has impacted the provision of ecosystem services from the local environment. In addition, he researches how the energy return on investment from oil is related to oil price and economic growth. Dr. Murphy's work for Argonne National Laboratory addresses the environmental impacts associated with energy development.

He tweets: @djmurphy04

Robert Rapier works in the energy industry and writes and speaks about issues involving energy and the environment. He is Chief Technology Officer and Executive Vice President at Merica International, a forestry and renewable energy company involved in a variety of projects around the world. Robert has 20 years of international engineering experience in the chemicals, oil and gas, and renewable energy industries, and holds several patents related to his work. He has worked in the areas of oil refining, natural gas production, synthetic fuels, ethanol production, butanol production, and various biomass to energy projects. Robert is the author of Power Plays: Energy Options in the Age of Peak Oil. He is also the author of the R-Squared Energy Column at Energy Trends Insider. His articles on energy and sustainability have appeared in numerous media outlets, including the Wall Street Journal, Washington Post, Christian Science Monitor, The Economist, and Forbes.

Jeff Vail (jeffvail) is an energy intelligence analyst and former US Air Force intelligence officer. He has a B.S. in engineering and history from the US Air Force Academy and a Juris Doctor from the University of Denver Sturm College of Law. His interests are in global energy geopolitics and the the "rhizome" theory of social and economic organization. He is the author of the political anthropology book A Theory of Power and maintains a blog at http://www.jeffvail.net.

Jérôme à Paris is an investment banker in Paris, specialised in structured finance for energy projects, in particular in the wind power sector. After graduating from the Ecole Polytechnique in Paris, he wrote his Ph.D. in economics in 1995 on the independence of Ukraine, with a strong focus on the gas relationship between Ukraine and Russia, and he worked on financings for the Russian oil & gas industry for several years after that. He is the editor of the European Tribune, a community website on European politics and energy issues. He has written extensively about energy issues, usually from an economic or geopolitical angle for the European Tribune and for DailyKos where he led a collective effort to draft an energy policy for the USA, Energize America.

Rune Likvern After Rune's first time seeing The Oil Drum (TOD and Institute for the Study of Energy and Our Future; ISEOF), in 2005 he created an account as nrgyman2000 and later got an invitation to become part of the staff of volunteer writers at what was then TOD Europe. In 2008 he started to post under his real name.

He is a Norwegian presently living in Norway and holding a masters degree from what is now the Norwegian University of Science and Technology. For more than two decades he was employed in various positions by major international oil companies, primarily Statoil, working with operations, field/area developments (in the Norwegian sector of the North Sea) and implementation (primarily logistics) of Troll Gas Sales Agreement (TGSA) which is about natural gas deliveries to European customers. This was followed by a period as an independent energy (oil/gas fields assessments, cash flow analysis, portfolio analysis etc.) consultant and as VP for an energy hedge fund in New York. In recent years he had a sabbatical to do more in depth research, reading and participating in discussions about energy, biology (what makes human {brains} what they are and why), and not least financial and economic subjects in several global forums as well as some advisory work.

Presently he is looking for gainful employment/engagements.

He also posts on his blog Fractional Flow
(primarily in Norwegian, but some future posts are planned for in English).

Phil Hart studied Materials Engineering at Monash University in Melbourne before spending five years with Shell UK Exploration and Production, based in Aberdeen, Scotland. He worked on two new North Sea oil and gas field development projects followed by a stint with the Brent field maintenance team as a corrosion engineer. In late 2006, Phil returned to Melbourne and was for a while an active member of the Australian Association for the Study of Peak Oil. He provided many briefings to government, business and community audiences and is still available for presentations around Melbourne and Victoria. Phil now works primarily in the water industry but consults as required for The Institute for Sensible Transport as well. He is also a keen astronomer and night sky photographer: www.philhart.com.

Luís Alexandre Duque Moreira de Sousa (Luís de Sousa) is a researcher at the Public Research Institute Henri Tudor in Luxembourg and a Ph.D. student in Informatics Engineering at the Technical University of Lisbon. Luís created the first Portuguese language website dedicated to Peak Oil in 2005 (PicoDoPetroleo.net); in 2006 he would be one of the founders of ASPO-Portugal and later that year integrated the team that started the European branch of The Oil Drum. Since then he has continuously written about Energy and its interplay with Politics and Economics, both in English and Portuguese. Luís is a regular presence at the collective blog European Tribune and writes on the broader issues of life on his personal blog AtTheEdgeOfTime.

The House That Randy Built

One of the nice aspects of the 7+ years I have been involved with The Oil Drum has been attending conferences and meeting with some of my cyber friends, who by and large figure among the nicest bunch of folks I ever met. In 2007 I attended the ASPO meeting in Houston and it was then that I met Randy Udall for the first time. Well you know what some Americans are like - you meet, you chat a while, discover you get along, down a couple of beers and before you know it you are invited to go visit. And so it was with Randy Udall....


The house that Randy built, sunk low in the Colorado terrain, provides shelter from winter storms and from exposure to summer sun. Photovoltaics, solar hot water (on the roof) and a single wood burner (chimney) provides all the energy needs.

Three years later, my wife and I had a trip planned to the States to go visit Dave Rutledge (another cyber mate) at his mountain lodge in New Mexico and I thought it would be cool to visit Randy en route. We exchanged a couple of emails, he warned that his wife Leslie was cautious about some of his friends coming to stay and that his son once claimed that the family lived in a "mud hut" and by now I was wondering if this was such a good idea. But plans were made and we went to stay with Randy in Colorado for a couple of days in August 2011; on arrival, any trepidation melted away.


A "mud hut", not quite. The stucco exterior finish covers thick foam insulation that in turn covers compressed earth (adobe) blocks. This provides protection from winter cold and summer heat, and thermal inertia from the large temperature swings prevalent in this part of the world.

At first sight Randy's house did indeed have the feel of a "mud hut" but upon entering the reality of a beautifully and lovingly crafted passive house unfolded. I was astonished to learn that Randy had designed and built every inch of this house himself, including the manufacture of every compressed earth brick and the hammering in of every nail - in neat serried ranks.

I wish I had recorded the vital statistics but the mass of bricks was carefully calculated to provide thermal inertia, keeping the house warm in winter but cool in summer. I was also very surprised to learn that all of the insulation was on the outside of the masonry structure which is the opposite of the way we build our houses in the UK. South-facing windows collect wintertime solar energy and the adobe block walls and brick floors soak up much of that heat energy, keeping the home warm through cold nights. During the summer, just opening the windows at night cools off the massive floors and walls, helping the house stay cool during hot days. Putting the insulation on the outside of the exterior walls is the only way to make this adobe wall strategy work effectively.

The house was set low in the terrain, providing protection from winter storms and from the worst excesses of summer heat. Outside you find a large solar PV array, providing a surplus of electricity and solar hot water arrays on the south facing roofs providing all the hot water required and, if my memory serves correctly, some interior heating during winter time.


The rather plain exterior gave way, inside, to simple, beautifully crafted, elegance.


Every timber cut and every nail hammered by one man. This is a masterpiece that will hopefully endure.

Inside, beautiful craftsmanship provides simple but elegant living space to match the view of Mount Sopris that dominated the surrounding landscape. Not many of us leave a lasting legacy. Randy has left memories of a wonderful and thoughtful teacher and a house that will hopefully stand as a testimony to his passion for sustainable living for centuries to come.


The view out of the front window wasn't that bad either. Mount Sopris (3,952 m /12,965 ft) offered Randy and his family fantastic walking, climbing and ski mountaineering opportunities.


Renewable energy and renewable transport. I am seldom pleased with the pictures I take, but there is something about this one I really like.


On the second evening of our visit, we dined with the local mayor and downed a few glasses of red. Randy may look pensive but he is actually looking at his lap top, has my credit card and is planning a road trip for us through Mesa Verde and Grand Canyon en route to New Mexico, one of the best trips my wife and I have ever made. He knew this area like the back of his hand.

To some, this house and lifestyle may seem fabulously exuberant. But the house, in fact, was built for a relatively tiny amount of money with most of the cost coming by way of blood, sweat, tears, knowledge and love of a vision for the future. These Udalls lived a simple life with a very strong sense of community involvement.

Most folks who read these pages will already know that in June of this year Randy died aged 61 of natural causes while hiking alone in the Wind River range of Wyoming, hunting for wild trout. The tragedy here is that he was snatched from his family and the sustainable living community he championed 10 to 20 years prematurely.

Thank you to Leslie Udall for consent to publish this article and to Steve Andrews for some useful editorial comments.

Twenty (Important) Concepts I Wasn’t Taught in Business School – Part I


Twenty-one years ago I received an MBA with Honors from the University of Chicago. The world became my oyster. Or so it seemed. For many years I achieved status in the metrics popular in our day ~ large paychecks, nice cars, travel to exotic places, girlfriend(s), novelty, and perhaps most importantly, respect for being a 'successful' member of society. But it turns out my financial career, shortlived as it was, occurred at the tail end of an era ~ where financial markers would increasingly decouple from the reality they were created to represent. My skill of being able to create more digits out of some digits, (or at least being able to sell that likelihood), allowed me to succeed in a "turbo" financial system that would moonshot over the next 20 years. For a short time I was in the 1% (and still am relative to 'all humans who have ever lived'). Being in the 1% afforded me an opportunity to dig a little deeper in what was really going on (because I quit, and had time to read and think about things for 10 years). It turns out the logic underpinning the financial system, and therefore my career, was based on some core flawed assumptions that had 'worked' in the short run but have since become outdated, putting societies at significant risks.

Around 30% of matriculating undergraduate college students today choose a business major, yet 'doing business' without knowledge of biology, ecology, and physics entirely circumvents first principles of how our world really works ~ my too long but also too short summary of the important things I wasn't taught in business school is below.


The Blind men and the Elephant, by Rudyard Kipling

Business as usual as we know it, with economics as its guide and financial metrics as its scorecard, is in its death throes. The below essay is going to appear critical of finance and the nations (world's) business schools. But it is too, critical, of our entire educational system. However, physicists, plumbers and plowmen do not have the same pull with respect to our cultural goals and narrative that financial folk do - as such an examination of the central assumptions driving society is long overdue. But before I point out what I didn't learn in MBA school, I want to be fair - I did learn things of ‘value’ for the waters I would swim in the future: statistics, regression, how to professionally present and to facilitate meetings, and some useful marketing concepts. Of course, like any 20 something student, 1/2 of the value of graduate school is learning to interact with the group of people that will be your peers, and the relationships and contacts that develop. Plus the placement office was very helpful in getting us jobs as well.

The culture at Salomon Brothers impressed me the most and I landed in their Private Investment Department, where we were basically stockbrokers for the uber-rich - as a trainee I wasn't allowed to call on anyone worth less than $50 million (in 1993). After Salomon shut our department down I went to a similar job at Lehman Brothers. At Lehman I increasingly felt like a high paid car salesmen and after 2 years quit to go work for a client, develop trading algorithms on commodities and eventually started my own small fund. But increasingly, instead of trading or trying to grow my business I found myself reading about oil, history, evolution and ecological issues. It really bothered me that 'externalities' were not priced into our goods or profits. One day, on a hike, it struck me that what I was doing felt spiritually hollow and despite it ‘paying the bills’ I began to realize I was more interested in learning about how the world worked and maybe doing something about improving it. In 2002 I gave my clients their money back, embarked on basically a 2 year hiking trip with my dog, and a car full of books. Eventually I would obtain a PhD in Natural Resources, but like many of you my real degree was obtained on this site, interacting with the many and varied people I met and continue to call friends and mentors. I am continuing to work on, or at least think about, making the near and long term future better, despite the tall odds, while living on a small farm in Wisconsin. More on this below.

In the years that have passed, modern society has become a crazy mélange of angst, uncertainty and worry. Many of us intuitively recognize that we’ve constructed a ginormous Rube Goldberg machine which for a number of reasons may not continue to crank out goods and services for the next 30-40 years. We blame this and that demographic for our declining prospects – the Republicans, the environmentalists, the greedy rich, the lazy poor, the immigrants, the liberals, etc. We blame this and that country or political system – evil socialists, heartless capitalists, Chinese, Syrians, Europeans, etc. We watch TV and internet about the latest ‘news’ influencing our world yet are not entirely confident of the connections. But underlying all this back and forth are some first principles, which are only taught piecemeal in our schools, if at all. Below is a short list of 20 principles underpinning today’s global ‘commerce’. I should note, if I was a 25 year old starting business school, eager to get a high paying job in two short years, I wouldn’t believe what follows below, even if I had time or interest to read it, which I probably wouldn't.

20. Economic 'laws' were created during and based on a non-repeatable period of human history

"I found a flaw. I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well." Alan Greenspan testimony to Congress, Oct 2011

Click image to enlarge.

The above graphic shows a three-tiered time history of our planet, starting with the top black line being geologic time. The tiny black sliver on the far right, is enlarged in the second line, and the sliver on its far right is again enlarged on the bottom line, where the last 12,000 years are shown. We, both our environment, and ourselves, are products of this evolutionary history. Our true wealth originates from energy, natural resources and ecosystem services, developed over geologic time. Our true behavioral drivers are a product of our brains being sculpted and honed by 'what worked' in all 3 eras of this graph (but mostly the top 2). The dark line on the bottom is human population, but just as well could be economic output or fossil fuel use, as they have been highly correlated over this period.

The economic ‘theories’ underpinning our current society developed exclusively during the short period labeled 'A' on the graph, on a planet still ecologically empty of human systems and when increasing amounts of extraordinarily powerful fossil energy was applied to an expanding global economic system. For decades our human economies seemed to follow a pattern of growth interrupted by brief recession and resumption to growth. This has made it seem, for all intents and purposes, that growth of both the economy and aggregate individual wealth was something akin to a natural law –it is certainly taught that way in business schools. The reality is that our human trajectory –both past and future - is not a straight line but more like a polynomial - long straight stretches, up and down, with some wavy periods in the middle, and ultimately capped. Our present culture, our institutions, and all of our assumptions about the future were developed during a long 'upward sloping' stretch. Since this straight line period has gone on longer than the average human lifetime, our biological focus on the present over the future and past makes it difficult to imagine that the underlying truth is something else.

Evidence based science in fields like biology and physics has been marginalized during this long period of 'correlation=causation'. This oversight is not only ubiquitous in finance and economics but present in much of the social sciences, which over the past 2 generations have largely conflated proximate and ultimate explanations for individuals and societies. In nature geese fly south for the winter and north in the spring. They do this based on neurotransmitter signals honed over evolutionary time that contributed to their survival, both as individuals and as a species. "Flying north in spring" is a proximate explanation. "Neuro-chemical cues to maximize food/energy intake per effort contributing to survival" is an 'ultimate' explanation. In business school I was taught, 'markets go north' because of invention, technology and profits, an explanation which seemed incomplete to me even though it has appeared to be valid for most of my life. Social sciences have made great explanations of WHAT our behavior is, but the descriptions of WHY we are what we are and HOW we have accomplished a vast and impressive industrial civilization are still on the far fringes of mainstream science. Economics (and its subset of finance) is currently the social science leading our culture and institutions forward, even if now only by inertia.

19. The economy is a subset of the environment, not vice versa

If people destroy something replaceable made by mankind, they are called vandals; if they destroy something irreplaceable made by God, they are called developers.
Joseph Wood Krutch

When you have to classify the very capacity of the Earth to support life as an "externality", then it is time to rethink your theory. --Herman Daly--

Click image to enlarge.

Standard economic and financial texts explain that our natural environment is only a subset of a larger human economy. A less anthropocentric (and more accurate) description however, is that human economies are only a subset of our natural environment. Though this may seem obvious, currently anything not influencing market prices remains outside of our economic system, and thus only actively 'valued' by government mandates or by some individuals, not by the cultural system as a whole. A landmark study in NATURE showed that the total value of 'ecosystem services' -those essential processes provided to humans by our environment like: clean air, hydrologic cycles, biodiversity, etc. if translated to dollar terms, were valued between 100-300% of Global GNP. Yet the market takes them for granted and does not ascribe value to them at all!!! Part of reason is that the negative impacts from market externalities aren't immediate, and with our steep discount rates (see below), the near term 'benefits' of GDP outweigh 'abstract' costs at some unknown future date.

Mankind's social conquest of earth has brought with it some uncomfortable 'externalities'. We are undergoing a 6th great extinction, which is no wonder given that humans and our livestock now outweigh wild animals by almost 50:1. Our one species is appropriating over 30% of the Net Primary Productivity of the planet. (One can ask, how can we use 30% of sunlight yet have 50x the weight of the other vertebrates and the answer, as we will see below, is our consumption of fossil carbon). A short list of deleterious impacts not incorporated into prices/costs includes: air pollution, water pollution, industrial animal production, overfishing (90% of pellagic fishes (tuna) in ocean are gone), nuclear waste, biodiversity loss, and antibiotic resistance. Perhaps the most ominous is the threat of climate change and ocean acidification, where humans, via burning large amounts of fossil carbon, are impacting global biogeochemical systems in profound and long-lasting ways.

Since GDP, profits and 'stuff' are how we currently measure success, these 'externalities' only measurement is the sense of loss, foreboding and angst by people paying attention. Such loss is currently not quantified by decision makers. In the past, only when there was a ‘smoking gun’ e.g. in the case of chlorofluorocarbons, DDT, unleaded gasoline, did society organize and require rules and regulations for the externalities, but these examples, as serious as they were, were not anathema to the entire human economy.

18. Energy is almost everything

Without natural resources life itself is impossible. From birth to death, natural resources, transformed for human use, feed, clothe, shelter, and transport us. Upon them we depend for every material necessity, comfort, convenience, and protection in our lives. Without abundant resources prosperity is out of reach.
— Gifford Pinchot Breaking New Ground (1998), 505.

In nature, everything runs on energy. The suns rays combine with soil and water and CO2 to grow plants (primary productivity). Animals eat the plants. Other animals eat the animals. At each stage of this process there is an energy input, an energy output and waste heat (2nd law of thermodynamics). But at the bottom is always an energy input. Nothing can live without it. Similarly, man and his systems are part of nature. Our trajectory from using sources like biomass and draft animals, to wind and water power, to fossil fuels and electricity has enabled large increases in per capita output because of increases in the quantity of fuel available to produce non-energy goods. This transition to higher energy gain fuels also enabled social and economic diversification as less of our available energy was needed for the energy securing process, thereby diverting more energy towards non-extractive activities. The bottom of the human trophic pyramid is energy, about 90% of which is currently in the form of fossil carbon. Every single good, service or transaction that contributes to our GDP requires some energy input as a prerequisite. There are no exceptions. No matter how we choose to make a cup, whether from wood, or coconut, or glass or steel or plastic, energy is required in the process. Without primary energy, there would be no technology, or food, or medicine, or microwaves, or air conditioners, or cars, or internet, or anything.

A long term graph of human output (GDP) is one highly correlated with primary energy use. For a while (1950s to 1990s) improvements in efficiency, especially in natural gas plants, complemented energy use as a driver of GDP, but most of these have declined to now have only minor contributions. Since 2000, 96% of our GDP can be explained by 'more energy' being used. (For more data and explanation on this, please see "Green Growth - An Oxymoron"). Some resource economists have claimed that the relationship between energy and the economy decoupled starting in the 1970s, but what happened was just an outsourcing of the 'heavy lifting' of industrial processes to cheaper locations. If one includes energy transfers embedded in finished goods and imports there isn’t a single country in the world that shows a disconnect between energy use and GDP. Energy it turns out, not dollars, is what we have to budget and spend. Quite simply, energy is the ability to do work. How much work, we'll see below.

17. Cheap energy, not technology, has been the main driver of wealth and productivity

Click image to enlarge.

The chemical potential energy available from the burning of things (e.g. wood) is rather astounding when compared with the energy which we supply our bodies in the form of food, and the fossil fuels of coal, oil, and natural gas burn even hotter while also being much easier to store and transport. We quickly learned that using some of this heat to perform work would transform what we could accomplish in massive ways. One barrel of oil, priced at just over $100 boasts 5,700,000 BTUs or work potential of 1700kWhs. At an average of .60 kWh per work day, to generate this amount of 'labor', an average human would have to work 2833 days, or 11 working years. At the average hourly US wage rate, this is almost $500,000 of labor can be substituted by the latent energy in one barrel of oil that costs us $100. Unbeknownst to most stock and bond researchers on Wall Street, this is the real ‘Trade’.

The vast majority of our industrial processes and activities are the result of this ‘Trade’. We applied large amounts of extremely cheap fossil carbon to tasks humans used to do manually. And we invented many many more. Each time it was an extremely inefficient trade from the perspective of energy (much more energy used) but even more extremely profitable from the perspective of human society. For instance, depending on the boundaries, driving a car on a paved road uses 50-100 times the energy of a human walking, but gets us to where we are going 10 times faster. The ‘Trade’ is largely responsible for some combination of: higher wages, higher profits, lower priced goods and more people. The average american today consumes ~60 barrel of oil equivalents of fossil carbon annually, a 'subsidy' from ancient plants and geologic processes amounting to ~600 years of their own human labor, before conversion. Even with 7 billion people, each human kWh is supported by over 90kWh of fossil labor, and in OECD nations about 4-5 times this much.

Technology acts as an enabler, both by inventing new and creative ways to convert primary energy into (useful?) activities and goods for human consumption and, occasionally, by making us use or extract primary energy in more efficient ways. Even such services that appear independent of energy, are not so- for example, using computers, iPhones, etc in aggregate comprise about 10% of our energy use, when the servers etc are included. Technology can create GDP without adding to energy use by using energy more efficiently but:

a) much of the large theoretical movements towards energy efficiency have already occurred and

b) energy saved is often used elsewhere in the system to build consumption demand, requiring more and more primary energy (Jevons paradox, rebound effect). Technological improvement thus does increase efficiency, but higher levels of resource consumption and a larger scale of resource extraction offset this advantage.

Despite the power in the Trade, its benefits can be readily reversed. Firstly, if we add very large amounts of primary energy, even if it is inexpensive, the wage increases/benefits start to decline. But more importantly, and has been happening in the past decade or so, as energy prices increase, so too do the benefits of the “Trade” start to wane. The graph to the right (source, page 18) shows that as the price of energy doubles or triples the benefits of this 'Trade' quickly recede. This is especially true for energy intensive transportation, like air travel, and for highly energy intensive processes, like aluminum smelting, cement manufacture- fully 30% of US industry falls into this category. The ensuing reduction in 'salary' from large energy price increases can only partially be offset by efficiency measures or lean manufacturing moves, because the whole 'Trade' was predicated on large amounts of very cheap energy. This is why the mainstream media touting increased oil production or the growth rate in solar/wind is missing the larger point - what matters are the benefits derived at the various cost points of energy extraction/harnessing. Even with large amounts of gross energy, if it is too costly, it is much less helpful or worse, the infrastructure, trade arrangements and expectations built upon continued $40 oil and $0.05kWh electricity will have to be changed. Basically, the benefits to human societies from the mammoth bank account we found underground are almost indistinguishable from magic. Yet we have managed, over time, to conflate the Magic with the Wizard.

16. Energy is special, is non-substitutable in the production function, and has an upward sloping long term cost curve

"Oil is a renewable resource, with no intrinsic value over and above its marginal cost... There is no original stock or store of wealth to be doled out on any special criterion... Capital markets are equipped to handle oil depletion...It is all a matter of money", M.A. Adelman, Professor of Economics, MIT Source

Physics informs us that energy is necessary for economic production and, therefore growth. However, economic texts do not even mention energy as a factor that either constrains or enables economic growth. Standard financial theory (Solows exogenous growth model, Cobb Douglas function) posits that capital and labor combine to create economic products, and that energy is just one generic commodity input into the production function - fully substitutable the way that designer jeans, or earrings or sushi are. The truth is that every single transaction that creates something of value in our global economy requires an energy input first. Capital, labor and conversions are ALL dependent on energy. For instance, the intro text by Frank and Bernanke (2d ed., 2004, p. 48) offers explanations for increased productivity: …increased quantity of capital per worker, increased # of workers, and, "perhaps the most important,...improvements in knowledge and technology." Nowhere in standard economic literature is there even a hint that the "improvement" in technology they refer to has, historically, been directly linked to the progression of displacing solar-powered human and animal muscle with larger and larger quantities of energy from oil, coal, and gas. Though energy is central (in that even more difficult ore grades require more overburden to extract, requiring more diesel fuel, etc), energy is not the only key limiter – other minerals and metals are finite and deteriorating in quality and cannot be (easily) replaced.

Since energy seemed the same as any other commodity economic models assumed that energy and resources would follow the same decreasing cost curve we have come to expect from gadgets like toasters and coffee cups, where the technology, outsourcing of parts to their lowest cost countries, and efficiencies of scale have generally formed a declining cost over time. For a while, energy too followed this curve, but given that high quality resources are finite, and require high quality processed resources themselves to extract and refine, eventually the cost curve of energy and other key minerals and ores, begins to rise again. This 'dual view' of energy vs regular everyday products is a key failing in economic texts. But for most of the past 60-70 years however this omission was perhaps understandable, as there WAS a continuing supply of cheap energy so its worth seemed to be just the dollar price of it. For most, this is still the dominant worldview – dollars are more important than energy.



Historical cost curves for oil, coal and natural gas for Europe - Graph source: Rune Likvern Click to enlarge

15. Energy has costs in energy terms, which can differ significantly than dollar signals

“It is appropriate to conclude that, as long as the sun shines brightly on our fair planet, the appropriate estimate for the drag on the economy from increasing entropy is zero. William Nordhaus

“ The laws of economics are like the laws of engineering. There's only one set of laws and they work everywhere. One of the things I've learned in my time at the World Bank is that whenever anybody says "But economics works differently here", they're about to say something dumb. Lawrence H. Summers

“ ... the world can, in effect, get along without natural resources ... at some finite cost, production can be freed of dependence on exhaustible resources altogether.... Nobel Laureate Robert Solow

In nature, animals expend energy (muscle calories) in order to access energy (prey). The return on this ‘investment’ is a central evolutionary process bearing on metabolism, mating, strength and survival. Those organisms that have high energy returns in turn have surplus to withstand the various hurdles found in nature. So it is in the human system where the amount of energy that society has ‘to spend’ is that left over after the energy and resources needed to harvest and distribute that energy are accounted for. Finite resources typically follow a 'best first' concept of resource extraction. As we moved from surface exploration based on seeps to seismic surveys showing buried anticlines, to deep-water and subsalt reservoir exploration, and finally to hydro-fracturing of tight oil formations , the return per unit of energy input declined from over 100:1 to something under 10:1. To economists and decision makers only the dollar cost and gross production mattered during this period, as after all, more dollars would ‘create’ more energy flowing through our economies. Net energy can peak and decline while gross energy continues to rise, and indeed can go to zero when there is still plenty of gross resource remaining. Everything we do will become more expensive if we cannot reduce the energy consumption of specific processes faster than prices grow. Yet, financial texts continue to view economic activity as a function of infinite money creation rather than a function of capped energy stocks and finite energy flows.



Left chart - western Majors price needed for cash flow break even in yellow, overlayed on OPEC vs non-OPEC crude oil production. Source IEA, Goldman Sach 4/13 report 'Higher long term prices required for troubled industry'. Right curve total oil production from Western Majors - source

Irrespective of the dollar price tag, it requires about 245 kilojoules to lift 5kg of oil 5 km out of the ground. Similar biophysical costs apply to every energy extraction/harnessing technology we have - but they are all parsed into financial terms for convenience. After all, isn't it dollars (euros, yen, renminbi) that our system is trying to optimize? But these physical input requirements will not vary whether the number of digits in the worlds banking system increases or shrinks or goes away. Though fossil fuels are our primary source of wealth, they were created a long time ago, and in drawing down their bounty we have not needed to pay the price of their generation, only their extraction. And, despite enormous amounts of sunlight hitting the earth everyday, real (and significant) resources need to be expended in order to harness and convert the sunlight into forms and at places where it can be used.



There is an enormous difference between ‘gross’ and ‘net’ which manifests in financial sphere via costs. Irrespective of our choice of nominal statistic measuring GDP (wampum or dollars or digits or gold), an increasing % of them will be allocated to the energy sector. If our objective is just to increase GDP, we can just keep growing gross energy by locating and exploiting deeper and deeper pockets of fossil hydrocarbons, but eventually our entire food, healthcare, entertainment infrastructure will be to provide for a giant mining operation. Few media outlets (none actually) handicap the new surge in gross USA oil production by a)capex requirements going up faster than oil prices, b) the enormous increase in diesel use in the shale plays and c) the higher API gravity oil (42 for Bakken, 55 for Eagleford) which exaggerate energy content per barrel between 3.5% and 10.7%. Under current trends, the implications of energy depletion is we will move from energy costing less than 5% of our economy to 10-15% or more. In addition to the obvious problems this will create, we will be using lower quality energy as well. As oil has become more expensive, we are increasingly going towards coal and wood to replace it. Already, in countries with a large drop in ability to afford (e.g. Greece) are cutting down forests to heat their homes in winter.
Net energy is what societies should be focused on, and most don’t even know what it is.

14. Money/financial instruments are just markers for real capital

Some material things make my life more enjoyable; many, however, would not. I like having an expensive private plane, but owning a half-dozen homes would be a burden. Too often, a vast collection of possessions ends up possessing its owner. The asset I most value, aside from health, is interesting, diverse, and long-standing friends. Warren Buffet - The Giving Pledge


Some of my 'real capital': Natural capital - my backyard with trees, sun, water, Social capital Here 2 of my dogs, but equally my friends, contacts and family relationships, Built capital Our house, with solar hot water, chain saws, an aloe vera plant, and a deck, and Human Capital My health and skills (identifying edible mushrooms), my fathers health and skills (he's a doctor, and can grow vegetables, etc)

Growing a big bank account is like fat storage for animals – but it’s not, because it’s only a marker for fat – its caloric benefit stored for the future is intertwined with a sociocultural system linked to monetary and credit marker. In business school, (and on Wall St.) we were taught that stocks going up ~10% a year over the long run was something akin to a natural law. The truth turns out to be something quite different. Stocks and bonds are themselves ‘derivatives’ of primary capital - energy and natural resources – which combine with technology to produce secondary capital - tractors, houses, tools, etc. Money and financial instruments are thus tertiary capital, with no intrinsic value – it’s the social system and what if confers that has value and this system is based on natural, built, social and human capital. And, our current system of ‘claims’ (what people think they own) has largely decoupled from underlying ‘real capital’.

13. Our money is created by commercial banks out of thin air (deposits and loans are created at same time)

Though societies require ‘energy’, individuals require money in order to transact in the things energy provides. What is money anyways? I certainly didn't learn in business school (or any school for that matter). Quite simply, money is a claim on a certain amount of energy. When our economic engine kicked into gear in the early 1900s, money (not energy or resources) was the limiting factor. We had so much wealth in our natural resource bank account that we needed ways of turbocharging the broader economy so productive ventures could be undertaken by anyone with skill, products or ambition. It was around this time that banks came into existence - to increase the flow of money to match the productive output of our economies only made sense - too little money and we couldn't produce the 'power' needed by a hungry world. Creditworthy individuals/businesses could now obtain loans from commercial banks who were required to keep a small portion of their assets on reserve with a central bank. And it worked fabulously well. Correlation=causation and all that.

We were taught to view credit creation as a series of consecutive bank "intermediations", where some initial deposit rippled through the banking system and via a multiplier, created additional money. E.g. banks are unable to create credit themselves, but are just passing on some wealth already created. This is true for about 5% of money coming into existence. The reality for 95%+ of money creation is profoundly different. The standard concept of lending describes a transfer of an existing commodity to its exclusive use somewhere else. However, this new credit extended by banks does not remove purchasing power or claims on resources from anywhere else in the economy. Since banks are capital constrained, not reserve constrained they lend when (ostensibly) creditworthy customers have demand for loans, not when they have excess reserves. As such the ‘fractional reserve banking’ system taught in textbooks and demonized on the blogosphere is not the proper description. I didn't learn this until 2007 or so. Banks do not lend money, they create it. And this is why the focus on government debt is a red herring. All of our financial claims are debt relative to natural resources.

**(Edit - This new paper by Bank of England states precisely what I did just above -banks are not just intermediaries as taught in textbooks)

12. Debt is a non-neutral intertemporal transfer



The left graph, shows the disconnect between GDP and aggregate, non-financial debt. In every single year since 1965 we have grown our debt more than we have grown our GDP. The right graph shows the inverse - how much GDP we receive for each new dollar of debt - declining debt productivity. Source: FED Z.1 2013, NBER

(Note: I use the terms credit and debt interchangeably, though creditor and debtor are opposites)

Of the broad aggregate money in existence in the US of around $60 trillion, only about $1 trillion is physical currency. The rest can be considered, ‘debt’, a claim of some sort (corporate, household, municipal, government, etc.) If cash is a claim on energy and resources, adding debt (from a position of no debt) becomes a claim on future energy and resources. In financial textbooks, debt is an economically neutral concept, neither bad nor good, but just an exchange of time preference between two parties on when they choose to consume. (* we were taught in corporate finance, because of the deductibility of interest, choosing debt over equity is preferred in situations with taxes – but in the real world, when capital markets are open and credit is flowing, if a CEO has choice between financing a project with equity or debt, he/she will almost always prefer debt. And so they do.) However, there are several things that happen when we issue debt/credit that cause the impact of the convention to be much different than in the textbooks:

1) While we are issuing debt (especially on a full planet) the best and easiest to find energy and resources deplete making energy (and therefore other things) generally more expensive for the creditor than the debtor. People that choose to save are ‘outcompeted’ by people who choose to consume by taking on debt. At SOME point in the future SOME creditors will get less, or nothing. (the question now is ‘when’ and ‘who’)

2) We increasingly have to issue more debt to keep up with the declining benefit of the “Trade”, lest aggregate demand plunge.

3) Over time we consume more rather than adding productive investment capacity. This lowers debt productivity over time (debt productivity is how much GDP we get for an additional $ of debt, or the ratio of GDP growth relative to debt growth). If an additional dollar of debt created a dollar of GDP, or anything close, it would be more or less like the textbooks claim – a tradeoff in the temporal preferences of the creditor and debtor. And, when debt productivity is high, we are transforming and extending wealth into different forms of future wealth (energy into productive factories etc). But when debt productivity is low (or approaching zero as is the case now), new debt is really just an exchange of wealth for income. This is happening now in all nations of the world to varying degrees. E.g. since 2008, G7 nations have added 1 trillion in nominal GDP, but at a cost of increasing debt by $18 trillion – and this doesn’t include off balance sheet guarantees.

Debt can thus be viewed two ways – 1) from a wealth inequality perspective, for every debtor there is a creditor – a zero sum game, 2) all claims (debts) are relative to the energy and natural resources required to a) service them and b) pay off the principle. (So, think 2 Italians: Gini and Ponzi.)

11. Energy measured in energy terms is the cost of capital

The cost of finite natural resources measured in energy terms is our real cost of capital. In the short and intermediate run, dollars function as energy, as we can use them to contract and pay for anything we want, including energy and energy production. They SEEM like the limiters. But in the long run, accelerating credit creation obscures the engine of the whole enterprise - the ‘burning of the energy’. Credit cannot create energy, but it does allow continued energy extraction and much (needed) higher prices than were credit unavailable. At some point in the past 40 years we crossed a threshold of 'not enough money' in the system to 'not enough cheap energy' in the system, which in turn necessitated even more money. After this point, new credit increasingly added gross energy masking declines in our true cost of capital (net energy/EROI). Though its hard to imagine, if society had disallowed debt circa 1975 (e.g. required banks to have 100% Tier 2 capital and reserves) OR if we had some natural resource tether – like gold – to our money supply since then, global oil production and GDP would likely have peaked 20-30 years ago (and we’d have a lot more of the sub 50$ tranche left). As such, focus on oil and gas production numbers isn't too helpful without incorporating credit forecasts and integrating affordability for societies at different price tranches.

An example might make this clearer: imagine 3,000 helicopters each dropped a billion dollars of cash in different communities across the country (that’s $3 Trillion ). Citizens that get there first would stuff their backpacks and become millionaires overnight, lots of others would have significant spending money, a larger number would get a few random hundreds stuck in fences, or cracks, and a large % of the population, not near the dropzone, would get nothing. The net effect of this would be to drive up energy use as the new rich would buy cars and take trips and generally consume more. EROI of the nations oil fields wouldn’t change, but oil companies would get a higher price for the now harder to find oil because the economy would be stronger, despite the fact that those $3 trillion came from thin air (or next to it). So, debt went up, GDP went up, oil prices went up, EROI stayed the same, a few people got richer, and a large % of people got little to nothing. This is pretty much what is happening today in the developed world.

Natural systems can perhaps grow 2-3% per year (standing forests in USA increase their volume by 2.6% per year). This can be increased via technology, extraction of principle (fossil carbon), debt, or some combination. If via technology, we are accessing energy we might not have been able to access in the future. If we use debt, we are diverting energy that would have been accessible in the future to today by increasing its affordability via handouts/guarantees and increasing the price that energy producers receive for it. In this fashion debt functions similarly to technology in oil extraction. Neither one is 'bad', but both favor immediate consumption on an assumption they will be repeated in continued iterations in the future.

Debt temporarily makes gross energy feel like net energy as a larger amount of energy is burned despite higher prices, lower wages and profits. Gross energy also adds to GDP, as the $80+ per barrel oil extraction costs in e.g. Bakken Shale ends up being spent in Williston and surrounding areas (this would be a different case if the oil were produced in Canada, or Saudi Arabia). But over time, as debt increases gross energy and net energy stays constant or declines, a larger % of our economy becomes involved in the energy sector. Already we have college graduates trained in biology, or accounting, or hotel management, working on oil rigs. In the future, important processes and parts of non-energy infrastructure will become too expensive to continue. Even more concerning is that, faced with higher costs, energy companies increasingly follow the societal trend towards using debt to pull production forward in time (e.g. Chesapeake, Statoil). In this environment, we can expect total capital expenditure to keep pace with total revenue every year, and net cash flow become negative as debt rises.

In the last 10 years the global credit market has grown at 12% per year allowing GDP growth of only 3.5% and increasing global crude oil production less than 1% annually. We're so used to running on various treadmills that the landscape doesn't look all too scary. But since 2008, despite energies fundamental role in economic growth, it is access to credit that is supporting our economies, in a surreal, permanent, Faustian bargain sort of way. As long as interest rates (govt borrowing costs) are low and market participants accept it, this can go on for quite a long time, all the while burning through the next tranche of extractable carbon and getting reduced benefits from the "Trade" creating other societal pressures. I don't expect the government takeover of the credit mechanism to stop, but if it does, both oil production and oil prices will be quite a bit lower. In the long run it's all about the energy. For the foreseeable future, it's mostly about the credit

But why do we want energy and money anyways?

Continued in Part II

So, What Are You Doing?

It's September and we still have 7 more 'final' posts in the queue (myself, Joules, Jerome, Jason, Art, Dave Murphy, and Euan...) and will run them every 2 days until finished. Leanan will post a final Drumbeat later this week where people can leave website links contact details, etc.

For 8 years we read about what people think about energy related themes. I thought it would be a good idea to use this thread to highlight what people are actually doing in their lives given the knowledge they've gleaned from studying this topic, which really is more of a study of the future of society.

What do TOD members plan to do in the future? Herding goats, fixing potholes, creating web sites, switching careers, etc? I'll go first. Feel free to use my template or just inform others what you're doing. This might be interesting thread to check back on in a few/many years.....(Please no posting of energy charts etc. and let's not respond to others in this thread, just a long list of what people are doing w/ their time).

Ere we scatter to the ether, please share, anonymously or otherwise : what are people doing?

The Exponential Legacy of Al Bartlett

Dr. Albert Allen Bartlett, emeritus professor of physics at the University of Colorado, died September 7, 2013 at the age of 90. It is coincidental that, in the year that he "officially" retired from teaching (1988), I first heard his famous lecture Arithmetic, Population, and Energy (although I don't recall if that was the title at the time). I was in my last year in graduate school, and his talk was one of the keynote presentations (or perhaps during dinner) for a scientific conference. It was seemingly out of place given that the subject of the meeting was surface chemistry and physics, but it most certainly became stuck somewhere in my mind for reasons other than its novelty.

Most scientists are transfixed on interesting scientific details, some with relevance to technological problems, and perhaps buzz-worthy enough to attract funding. There has never been much money in solving problems with no real technological solution. I became reacquainted with this talk in 2006, probably via a link on The Oil Drum. TOD was by its nature dealing with limits to growth (of oil, if nothing else), and over the last few years, we have discussed the various ways in which we could perhaps keep the oil flowing or replace it with something else. Perhaps the implications of exponential growth was kept in the back room somewhere, like an embarrassing relative, while the latest "game changing" solution was bandied about. But we need to continually remind ourselves that, while important, finding the next energy source or improving efficiencies the keep the economy growing are not long-term solutions for a finite planet.

Below are some more reflections on Prof. Bartlett's legacy, from ASPO-USA (where he had long been on the advisory board) and from the University of Colorado.

Albert A. Bartlett: Ode to a Gentle Giant

Dr. Albert Allen Bartlett enjoyed 90 years of rich life on this earth; moreover, thousands of people have enjoyed and been touched by Al's life.

He is of course most widely known as a tireless, eloquent, and supremely caring voice for charting a sustainable path for humanity. With seemingly endless determination, he applied his training in math and physics and skills as a master teacher to focus attention on a simple but paramount idea--on a finite planet, "growth" is unsustainable. "Sustainable growth is an oxymoron", is how Al is sometimes quoted.

His most reknowned quote, however, is "the greatest shortcoming of the human race is our inability to understand the exponential function"--referring to the accelerating rate exhibited by anything growing as a constant percentage increase.

Al developed a now-famous lecture that illustrated the power and importance of this mathematical phenonomenon, and reportedly delivered that lecture more than 1700 times over the following decades. That one man would be compelled to devote much of his career to the understanding of a basic, unassailable fact of life speaks volumes about the world we live in, as well as Al's great character.

ASPO-USA is proud to have had Al as a longstanding member of our advisory board, and I was exceptionally fortunate to be acquainted with him in his latter years. While the nature of our relationship was professional, what I will always remember is the warmth, humility, and quiet joy that he brought to his work and his relationships with his colleagues and students.

For those that dare to concern themselves with the monumental issues that concerned Al, there is a risk of gloominess creeping into our outlook on life and humanity. Al is a beautiful reminder that need not be the case.

The note that Al wrote to us after he visited his doctor was filled with the peace and happiness of a man who had understood long ago what was important in life and had lived his own life accordingly. We should all be so blessed, and some of us were also blessed to know Al.

In honor to Al, inspired and informed by his life and his friendship, we re-commit ourselves to continuing and building on his legacy.

Click below to view Al's famous lecture - Arithmetic, Population, and Energy:

http://peak-oil.org/2013/09/arithmetic-population-energy

Jan Mueller Executive Director, ASPO-USA

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CU-Boulder campus mourns death of longtime, celebrated physics professor Al Bartlett

excerpted from here

“Al Bartlett was a man of many legacies,” said CU-Boulder Chancellor Philip P. DiStefano. “His commitment to students was evidenced by the fact that he continued to teach for years after his retirement. His timeless, internationally revered lecture on the impacts of world population growth will live beyond his passing, a distinction few professors can claim. And we can all be thankful for his vision and foresight in making the Boulder community what it is today.”

Bartlett was born on March 21, 1923, in Shanghai, China. He earned his bachelor’s degree in physics from Colgate University and spent two years as an experimental physicist at the Los Alamos Scientific Laboratory in New Mexico as part of the Manhattan Project before earning his graduate degrees in physics at Harvard. He then started his teaching career at CU-Boulder.

When Bartlett first delivered his internationally celebrated lecture on “Arithmetic, Population and Energy” to a group of CU students on Sept. 19, 1969, the world population was about 3.7 billion. He proceeded to give it another 1,741 times in 49 states and seven other countries to corporations, government agencies, professional groups and students from junior high school through college.

His talk warned of the consequences of “ordinary, steady growth” of population and the connection between population growth and energy consumption. Understanding the mathematical consequences of population growth and energy consumption can help clarify the best course for humanity to follow, he said.

The talk contained his most celebrated statement: “The greatest shortcoming of the human race is our inability to understand the exponential function.” A video of his lecture posted on YouTube has been viewed nearly 5 million times.

This year, the world population is about 7.1 billion and the CU Environmental Center announced a program this summer in which 50 student and community volunteers received training in exchange for a commitment to give Bartlett’s talk at least three times in 2013-14.

Before his death, Bartlett requested that any memorial gifts be made to the University of Colorado Foundation Albert A. Bartlett Scholarship Fund, in care of the Department of Physics, 390 UCB, University of Colorado Boulder, Boulder, CO, 80309.

Of Milk Cows and Saudi Arabia

Under the desert in eastern Saudi Arabia lies Ghawar, the largest oil field in the world. It has been famously productive, with a per-well flow rate of thousands of barrels per day, owing to a combination of efficient water injection, good rock permeability, and other factors. At its best, it set the standard for easy oil. The first wells were drilled with rather rudimentary equipment hauled across the desert sands, and the oil would flow out at ten thousand barrels per day. It was, in a sense, a giant udder. And the world milked it hard for awhile.


However, this article isn't just about a metaphor; it is also about cows, the Holsteins of Haradh. But in the end, I will circle back to the present and future of Saudi oil production.

I registered on The Oil Drum over seven years ago, and one of the subjects that fascinated me was the oil fields of Saudi Arabia. There was much discussion about the largest of these, Ghawar, and whether it might soon go into steep decline - taking the world with it. About that time, an application called Google Earth added some features which enabled users to mark up the globe with their own placemarks and such, and I set out to find Ghawar (or at least its footprints) in the vast sandscape that is the Eastern Province. Starting with published maps which could be overlaid atop the satellite imagery in Google Earth, I found some initial wells...and then a lot more...and kept going. An article authored by Saudi Aramco engineers showed well locations in northern Ghawar, and I noticed that many wells which I found yet were not on the map. I deduced that these were wells drilled after the map was drawn, and their locations seems to indicate intensive drilling in the center of the field, which was previously bereft of wells. I began publishing some of these findings on the blog Satellite o'er the Desert and was invited to contribute to The Oil Drum.

In my Google Earth-enabled virtual travels around Saudi Arabia looking for oil wells and such, I have come upon many strange sights. Some of these are of natural origin yet can only be appreciated from a satellite's perspective, as is the case for this tidal pool located near a gas oil separation plant for the Safaniya oil field:

Figure 1. My favorite Google Earth view, near Safaniyah oil field, Saudi Arabia

There are many crop circles scattered about eastern Saudi Arabia -- by which I mean circles of crops watered by central pivot irrigation (as opposed to circles of crops flattened by aliens). A line of such circles cuts across the southern tip of the Ghawar field, seemingly following the course of a dry river bed.

Figure 2. Irrigation along the southern fringe of the Ghawar Oil Field, Saudi Arabia. Arrows indicate location of features of interest.

Located on this line, just to the west of the field periphery, are three rather symmetrical structures:


Figure 3. Symmetrical objects of interest near Ghawar oil field.

Each of these is about 250 meters in radius. It took me awhile to discover what these were, as at the time, crowdsourced mapping was just getting started. It so happens that they are part of a huge integrated dairy operation, one of the largest in the world. Fodder crops are grown in nearby circles, cows are milked with state of the art equipment, and the milk is packaged and/or processed into cheese and other products before being shipped. All of this happens in the northernmost fringe of the Rub' al Khali desert, one of the most inhospitable places on earth. Start here to browse around Saudi Arabia's Dairyland on your own using Google Maps.



Turning Black Gold Into White Milk

Here is a glossy PR video describing the operations:


Although the original intent was to locally breed cows more suited to the Saudi climate, it seems they had to import them. Here is another video describing the transport of cows from Australia. A bit different than a Texas cattle drive.

They Built It, But They Didn't Come

Answering why and how these dairy farms came to be located here reveals some interesting history of Saudi Arabia. Although great wealth of the country results from its abundant store of fossil fuels, the necessity of diversifying the economy has long been recognized. The lack of food security was always a big concern. In addition, there remained the nagging problem of what to do with the Bedouins, nomadic peoples who resisted efforts to be integrated into the broader Saudi society. And since they now had it in abundance, they decided to throw money at the problems. What could go wrong?

As related in the book "Inside the Mirage" by Thomas Lippman, a problem with Saudi agriculture is that most of the private land was owned by just a few people, and they were wealthy aristocrats, not farmers, and there wasn't much local knowledge of modern large-scale agriculture in any case. One of the proposed solutions was to create huge demonstration projects by which modern techniques of farming could be learned and applied. As for labor, the goal was to provide individual farms, housing, and modern conveniences to the Bedouin, who would settle down for a life on the farm. The largest such project was the al-Faysal Settlement Project at Haradh, designed for 1000 families. It didn't work out as planned, though, because the Bedouins never came:

You know of the Haradh project, where $20 million was spent irrigating a spot in the desert where an aquifer was found not too far from the surface. This project took six years to complete and was done for the purpose of settling Bedouin tribes. At the end of six years, no Bedouin turned up and the government had to consider how to use the most modern desert irrigation facility in the world.

(From a 1974 Ford Foundation memo)

Eventually, the Saudi government partnered with Masstock, a Dublin-based industrialized endeavor run by two brothers. The Haradh project became the largest of their operations in Saudi Arabia at the time. Eventually, a new company called Almarai (Arabic for "pasture") was created which involved Prince Sultan bin Mohammed bin Saud Al Kabeer. In 1981, a royal decree created the National Agricultural Development Company (NADEC) for the purpose of furthering agricultural independence, and (for reasons I haven't discerned), NADEC gained control of the Haradh project. Almarai went on the become the largest vertically integrated dairy company in the world, and Al Kabeer is a hidden billionaire.

As a side note, NADEC sued Saudi Aramco a few years ago as a result of the latter using some NADEC property for Haradh oil operations, and a lower court ordered Saudi Aramco to vacate. The web links to those reports have disappeared, and one wonders how the appeal went. Separately, NADEC has reportedly obtained farmland in Sudan. Food security.

Speaking of Cash Cows

A half decade ago, much of The Oil Drum's focus was on possible problems with Saudi Arabian oil production. Was the flow from Ghawar tanking? Were all of their older fields well past their prime, and were their future options as limited as Matt Simmons suggested in Twilight in the Desert? My analyses and those of others here seem to suggest a rather aggressive effort to stem decline. With further hindsight, it is clear that Saudi Aramco was caught a bit off guard by decline in existing production. But over time, they were able to complete several decline mitigation projects as well as many so-called mega-projects with many million barrels per day of new production. With each project, the technological sophistication has grown - along with the expense. The Khurais redevelopment, which is reportedly producing as expected, features centralized facilities for oil, gas, and injection water processing. Water goes out, and oil comes back.

Figure 4. Left: map showing Saudi oil fields, Right: Khurais Project pipeline network (source: Snowden's laptop)

The most recent project, the Manifa field redevelopment is a logistical marvel. These have so far proven to be very successful projects (even though Manifa is not fully completed). But if one looks for the impact of the projects on their total output, one comes back somewhat underwhelmed. In the following graphic I show Saudi Arabian production with the theoretical (zero depletion) and official (as reported directly by Saudi Aramco) production capacities.


Figure 5. Saudi Arabian crude oil production increases from megaprojects since 1996, compared with actual crude production (source: Stuart Staniford). Cumulative increases are superimposed on the Saudi Aramco reported baseline value of 10.5 mbpd capacity in 1995. Blue dots denote values obtained from references 1, 2, 3, 4, 5, 6

Here are some conclusions one might draw from the above (including the references):

  • Saudi Aramco has generally been self-consistent when reporting spare capacity and total capacity in light of actual production
  • Production capacity increased subsequent to startup of megaprojects. However, the net production capacity increases were uniformly and substantially less than the planned increments. In total, 5 million barrels per day of production was added, but capacity increased by only 2 mbpd.
  • It is most unlikely that reported production capacities accurately reflected what was producible at any point in time, given the reported values as correlated with the timing of the increases from the megaprojects.
  • However, actual production did not generally increase immediately after projects were completed, indicating that production capacity was not completely exhausted beforehand. But there was certainly an impetus to add a lot of production quickly.

The gap between what might have been (red staircase) and what is reported as production capacity (blue dots) is explained by considering the net of two competing developments: 1) depletion of legacy fields (Ghawar etc.) as they are produced, and b) mitigation of this depletion by drilling new wells in these fields. Since Saudi Aramco does not release data for individual fields or new vs. old wells, we are left to speculate on the relative magnitudes of these. On the plus side, the 5 mbpd from the new projects will (hopefully) deplete less rapidly than older fields. On the minus side, only 2 mbpd capacity was added - and they have exhausted all of the major fields in the pipeline. On the double minus side (for the world, anyway), only 1 - 1.5 mbpd of actual production was added since 1995, and (according to BP) all of that increase went into internal consumption. So after nearly 20 years, though total world crude production (and population) has increased, Saudi Arabia exports the same amount of oil as before. And yet, there is still a lot of hydrocarbons under Saudi Arabia. And it seems they already realize the need for more, as there are reports of planned increases from Khurais and Shaybah totaling 550 kbpd by 2017 to "take the strain off Ghawar". I feel its pain.

Addendum: According to this news report, oil has not actually flowed yet from Manifa. The new Jubail refinery has reportedly no received any Manifa oil as of yet:

The refinery is configured to run on heavy crude oil. But two industry sources said the refinery had not received any of the heavy crude expected from Aramco's new Manifa field and that it was running instead on light crude. Aramco said in April that it had started production at Manifa.-Reuters

Still the One?

Despite all of the negativity emitted above, it is also evident that Saudi Arabia has had and will continue to have a role as the primary provider of spare capacity which can be deployed to buffer variability in world demand. It can do this because Saudi Aramco, the largest oil company in the world, can effect oil prices by virtue of what it can put on or take off the world market. Contrast the Saudi production profile with that of the United States, shown below.

Figure 6. United States monthly crude oil production (source: EIA)

Aside from some minor month-to-month fluctuations and some notable downward spikes caused by Gulf of Mexico hurricanes in 2002 (Isadore), 2004 (Ivan), 2005 (Katrina and Rita), and 2008 (Gustav), production follows a smooth trend. Especially noteworthy is the contrast between Saudi and US production subsequent to the economic downturn in 2008, when oil prices collapsed: Saudi Arabia throttled back while the US kept pumping. Any individual producer in the US had little incentive to hold back oil. However, with the increased importance of Shale plays (Bakken and Eagle Ford) to US production, this might change the dynamics going forward. Since these wells deplete rapidly, any decrease in drilling caused by low prices will also throttle demand (although with a time lag).

The Hungry Cow

The other new "above ground factor" is the problem of growing internal consumption in Saudi Arabia, of just about everyting including oil. To air condition all of those cows, it takes a lot of electricity (and currently oil). And all of that milk feeds a growing, young population. But that milk is bound to get more expensive, since the aquifers from which those massive dairy operations get their water are being rapidly depleted.

Milk consumption in Saudi Arabia reached 729.4 million litres in 2012
...
The Kingdom has already depleted 70% of these sources of water and must now turn increasingly to desalinisation which when factored into the cost of producing fresh milk is very expensive. Experts have estimated that it takes between 500- 1000 litres of fresh water to produce 1 litre of fresh milk if one takes into around the irrigation required to grow the Rhodes grass or Alfalfa required to feed the cows.

It seems Saudi Arabia has cash flow problems, although it is hard to imagine why, given that they are currently producing as much oil as ever at $100/barrel. For one thing, their population keeps growing:

Figure 7. Saudi Arabia population growth (source: Thanks, Jonathan!)

and they need to spread around some money to maintain political stability. Their energy use is out of control, as is their water consumption. And for those segments of Saudi society into which much of the oil revenue flows, consumption is a happening thing. And nobody really knows where the all money goes.

Saudi Aramco is overseen by the Petroleum and Mineral Resources Ministry and, to a lesser extent, the Supreme Petroleum Council, an executive body. The company pays royalties and dividends to the state and supplies domestic refineries. Revenues go to the Finance Ministry, but the amounts are not published. There is no transparency in the national budgeting process, and it is unclear how oil revenues are used. Environmental impact assessments are required, but the results are not made public. Laws and decrees concerning the extractive industries are published and include guidelines for the licensing process in sectors other than upstream oil, but do not contain details on fiscal arrangements. Saudi Arabia has no freedom of information law.

Some ends up in London, where some Saudi tourists spend the entire summer. Of course, this was true in 2002 (and oil was $26/barrel then).

But they do seem to have money to throw around to garner political influence (note that the US does the same with money that it doesn't have). And they have grand plans for looking beyond their petro-heritage:

Best hopes for wise spending.

Au revoir. Au lait.