Friday, January 22, 2010

There is Method to my Madness

The readership of the blog has been increasing very fast (admittedly from a miniscule base), and it occurs to me that from the perspective of a new reader it must appear that I am exploring a melange of apparently unrelated issues, and it's not clear what I think the connection is to "Risks to Global Civilization".

So let me lay out my hypothesis. I think it's possible that the leading risk to global civilization in the medium term is the following chain of events:

  • Rising oil consumption in the developing world, particularly Asia, particularly China, meets limited supply as the world reaches the point were it cannot increase global oil supply much further.
  • This leads to a series of oil price shocks (the one of 2005-2008 being just the first in a series).
  • The easiest and fastest supply side response to that is biofuels made either from food, or crops grown on land that would otherwise grow food.
  • Since the energy content of the global food supply is much smaller than the energy content of the global fuel supply, this can cause major food price increases.
  • Middle class drivers can afford fuel much better than poor residents of developing countries can afford food, so arbitrage between food and fuel leads to a "Starve the Slums" scenario, primarily in the developing world.
  • This destabilizes various (mostly poor) nations in ways that are fairly unpredictable in detail, leading to revolutions, civil wars, inter-state warfare, etc.
  • This in turn leads to less resource availability from the countries in turmoil, driving further spikes in food/fuel prices, further exacerbating the problem, till it starts to lap at the shores of the developed world too.
I emphasize the word risk above, since there are many things that could intervene to prevent things playing out this way, either accidentally, or as a result of deliberate policy choices (possibly even wise and far-sighted ones - hey, I can hope, can't I?).

So pretty much all my activities on this blog are researching various aspects of this scenario trying to understand what the main drivers of the risk are, what might mitigate it, what might exacerbate it, how likely it really is.

So for example, I see the al-Shahristani plan as something that likely has a dual effect: it delays the risk, by giving another interval of oil-shock-free global development, just like the 80s and 90s, but ultimately worsens it, because when the world finally does meet the oil capacity limits, it will do so with a larger population of mouths to feed, and of car owners wanting to drive, and perhaps fewer alternatives developed in the meantime (my mental model is that development of alternatives to oil and conservation in the use of oil are largely contingent on high oil prices).


Datamunger said...

My guess for this decade is that stagnation/contraction/improved efficiency/gov policy in the developed world is enough to keep resources flowing into the developing world at sub-starvation prices. The slums eat the suburbs. Malthus lite. Will be plenty tense. Kunstler gets canonized (but has a security detail)

But by 2020, the OECD is lean and competitive, even in manufacturing. Then it's wolf time barring technology breakthroughs.

squashpractice said...


I can't argue with your basic scenario. Anything that can change this more or less inevitable path needs to be able to SCALE quickly. There are few technologies that offer much promise, but here are the two that I am watching.

High Altitude Wind. I see this as having enormous promise as an energy source. The problems with deployment are largely "control" problems, which are not easy but are solvable - think Segway.

BioChar for Agriculture is the other technology that could have the potential to scale and save the planet. Climate change is not high on your list, but I suspect that might change in our lifetime. Then we will need to not only stop spitting carbon into the air, but start removing it. A technology that could potentially remove carbon from the atmosphere while improving agricultural soils could be profitable (and hence could scale in a capitalist society).

Stuart Staniford said...

squashpractice - thanks for your thoughts. I do take climate change quite seriously, but I also think, right now, that it appears to be a slower acting problem, without the breathtaking growth rates of things like biofuel production. However, it seems quite possible that there are unsuspected non-linearities in the climate system that could cause rapid changes or, worse yet, flickering between modes, which could make it extremely serious. But it seems very hard to quantify those risks.

I haven't looked much at the high altitude wind thing - any favorite references?

JackRussell said...

Your scenario is one that I have wondered about myself.

The thing that is interesting however is that in 2005 there were very few people who saw any downside to biofuels. In 2010 that's no longer the case - people recognize how easy it is for the whole food chain to get screwed up with this, so when the next crunch comes along as it undoubtedly will, I think the support for expanding biofuel production is going to be pretty lukewarm.

Stuart Staniford said...

Jack - I will get into this in much more detail in a future post, but I think the key is that biofuel plants are highly profitable when oil prices go up enough. This is true even in the absence of subsidies (though certainly the latter lower the bar to profitability). So it would take active legislative suppression of biofuel production to stop the growth. Certainly in the US, that's hard to imagine given a) the lingering green brand of biofuels, b) strong agricultural block in the Senate, c) ability of agricultural interests to spend freely on lobbying and advertising (courtesy of the Supreme Court).

Manolo said...

Stuart, I love your title: "There is Method to my Madness" well, my thinking is that "There is Method to their Madness" too ("Their" meaning "TPTB"),I just cannot imagine this whole thing ongoing without a driver and a plan...but it's nice to see that some independent thinkers do have a mission of their own.
Wishing everybody good luck ! Always looks to me like a "minority report"

squashpractice said...

I first heard ran across the stuff the crazy Italians were doing:

There are some links to papers there. Since then, I have also seen references to the concept in Scientific American, specifically about what is happening in this country - mostly at Stanford:

Of coarse if the promise of cheap power comes true - what more ravages will we do to the planet that could then support even more people!


JackRussell said...

Yes, biofuel plants are profitable when the price goes high enough, but nobody is going to build them until they think that prices are going to reach that point. Businesses generally prefer predictability and stability. Wild gyrations in fuel prices are hard to deal with - for example, can you make enough money before the price crashes again in order to make enough money? Or is your business model to mothball when the prices are low?

Secondly, regarding the Supreme Court decision, Ag states are quite split by this. The people that raise the corn would love it of course - they make tons of money. But people who raise hogs, chickens or cattle hate it because it drives up their feed costs.

Edward Brown said...

"The readership of the blog has been increasing very fast (admittedly from a minuscule base"

Excellent! And well deserved.

Can you share some numbers? I would love to see a plot vs. time.

Since your content is interesting, I would anticipate seeing exponential growth until a certain point, and then a flattening out.

Thank you for the articles.


Stuart Staniford said...

Ed - I plan to have a little post about it at the end of the month. In the meantime, you can click on the sitemeter icon way down at the bottom of the page, and then click on visits:Previous 12 months and check out both the miniscule base and the rapid growth.

KLR said...

squashpractice - the Oil Drum had a whole article on kitegen: High altitude wind power: an era of abundance?

Pols, in the US anyway, seem to create the impression that Drill Baby Now, or DBN, is what brings salvation from pump price shock...PPS? That, and posse non speculatortatis. Laughed out of the room are ridiculous notions like keeping tires inflated. This piece suggests potential savings of 396 kb/d from proper psi. 3% from tires, 4% from proper maintenance. Would be interesting to see some numbers run on these; beats food for oil.

I assume you all have read the IEA's Saving Oil in a Hurry. That's ipso facto stuff, however.

DaveMc said...

In many of these end of the word as we know it scenarios there seems to be an assumption that a big increase in oil would lead to a food shortage due to lack of fossil fuels to create nitrogen fertilizer or power farm tractors. The assumption seems to be that there is no alternative to them for fertilizer production and that simply isn't true.

It is quite possible to make N fertilizer out of atmospheric nitrogen using the Birkeland process. This process uses an electric arc to simulate lightning so it does require electricity.

I could envision a scenario where farmers or a group of farmers could create their own fertilizer with wind generated power. Since it doesn't really matter if they make N constantly it doesn't matter if the wind occasionally dies down. It might make small generator wind power more viable if you had something steady to use the power for on your own farm. Since the manufacturing of nitrogen currently accounts for about half of a grain farm's energy use this would have a major impact on a farm's profitability if natural gas prices go through the roof.

Another possibility would be to mine the nitrogen, phosphate and potassium from city sewage treatment plants. The problem would be getting rid of the excess water to make transportation back to the countryside feasible.

Diesel isn't strictly necessary to power future farm equipment either. Farm machinery is big because there is a huge labor shortage in the countryside. Fleets of robots accomplish the same thing as having one large machine, gains efficiency and makes it possible to power it with different energy sources. They could be electrically powered, perhaps even solar powered,

Since you could have many of them operated by a computers and use GPS guidance systems for navigation they could be quite small. They would gain a tremendous amount of efficiency since they could turn on a dime. This would mean they wouldn't have to pull something with a lot of draft and therefore not need to have massive steel support beams to carry the stress load. Think of these operating like a farm version of those automatic solar powered lawnmowers or robotic vacuum cleaner.

I can see all kinds of ways to adapt modern agriculture to an era without access to cheap oil that wouldn't require a return to the scythe and hoe

Stuart Staniford said...


I agree - I don't buy the story at all that farmers won't be able to get fertilizer. Quite the reverse - I think farmers will be amongst the winners from oil supply constraints.

Stoneleigh said...

"I think the key is that biofuel plants are highly profitable when oil prices go up enough."

As oil prices rise, receding horizons typically kicks in. I very much doubt, however, that oil prices will keep rising (although they could in the short term). We have already seen the turn in gold and the dollar, and quite likely in equities. All these trends, along with commodities, depend on the ebb and flow of liquidity, and I would argue we are transitioning into ebb mode.

Commodities typically top on fears of scarcity, whether or not those fears are justified. While agree we have seen peak oil, that doesn't mean we won't see massive demand destruction as the economy tips into depression, and that will drop prices on the appearance of a glut, even in the face of predictable scarcity later. Prices simply are not rational and do not take account of the longer term. said...

It appears that in addition to the factors you describe, the 18 month war on deflation primarily conducted from the turrets of the OECD banking system are having the following effect: 1. limiting deflationary effects within the OECD, primarily through the lens of currency as, for example, USD zone persons experienced over the past year a fall in purchasing power. 2. The first sparks of inflation in the Non-OECD just as you say, and in my opinion the OECD liquidity flood may actually spark a horrendous inflation in Non-OECD/developing world. We got the first flashes of this in Q4 2009 as Asian central banks either sucked up gold and silver or encouraged their citizens to do the same. Now we see very aggressive action from the Indian Central Bank, and the start of more creative tightening in China. Meanwhile, the developing world reaches as hard as ever for the energy source of the poor: coal.

Finally, it behooves to remember that the marginal utility of small quantities per capita of oil to the developing world is so much richer than here in the OECD (I know you know this), that it seems the system to take oil prices much higher remains intact.

I am newly interested in the idea that the 2 billion people in OECD goes into permanent wealth decline, and joins the other 5 billion on the planet by increasingly our own use of coal.