The 88,000,000,000 barrel debt

When I plotted this chart, I was surprised to see that US primary energy production has held steady since 1981 at just over 1.5 billion tonnes oil equivalent per year. Declining oil has been compensated by rising coal and natural gas production. However, despite this abundant wealth of energy, the US has chosen to live beyond its means.

Energy consumption has grown, in part a reflection of growing population that underpinned economic growth. The energy deficit has not been paid for by exporting manufactured goods, which would have been one way of returning energy to the rest of the world, but has instead been paid for by running up a "paper deficit" that has now reached such a size that it lies at the heart of global economic imbalance.

The US energy debt to the world has now reached a staggering 88,000,000,000 barrels oil equivalent. It seems highly unlikely that this debt can ever be repaid in kind.

Euan, basically all you are saying is thet the US must import energy because consumption is greater than production. Could not the same be said about most European nations? Just looking at your top chart, it appears thet the US produces about 70 percent of the energy it uses. What about Germany, France, Italy or most other European nations? And what about other nations of the developed world like Japan, South Korea or Taiwan? Would they not be in far worse shape? And you say:

It seems highly unlikely that this debt can ever be repaid in kind.

Is this a debt that the US really owes? If so what are the chances that Japan will ever repay their debt which must be much greater on a per capita basis? It appears to me that you are picking on the US when many world nations are in far worse shape, per capita that is.

Ron Patterson

I agree. The concept of energy debt is completely bogus. Who is it owed to? I doubt that any energy bonds obligating repayment exist. All that exists is monetary debt brought on partly by oil and other imports.

In the case of monetary debt of a sovereign, it never has to be repaid. It only has to be managed. Management is made easier when the borrower has a reserve currency, and when others try to hold their own currencies down by buying the U.S. debt as in the case of China and Japan to encourage exports. Over time inflation of fiat money debt works in favor of the borrower.

Those who criticize U.S. debt should also at least mention those who are running even bigger debt like Japan. And Japan surely has an even higher "energy debt" since it produces no oil of its own albeit it has a trade surplus to offset it.

As we sent our money over seas to pay for the oil, it was sent back to the U.S. to buy CDO's, essentially it was loaned to people to buy houses. If you look at outstanding mortgages, it is about 10 trillion dollars. This is not an imaginary debt that we owe to ourselves. It is very real debt with very little chance of repayment.

The concept of energy debt is completely bogus. Who is it owed to?

Given that one uses a depleting resource for the energy, the energy debt is owed to future generations.

That is, anything burned today cannot be burned tomorrow. So that future generations won't be able to have the same kind of lifestyle we have today. Our lifestyle is one of wasteful affluence; our children will have to give up the wastefulness, the affluence, or - if we really bollocks things up - both.

I would agree that energy debt is "bogus" in the sense that nobody is doing accounting of any debit/credit accounts measured in energy units.

Nevertheless I find the number and graph presented by Euan interesting.

Even if there is no accounting directly in energy units, it stands to reason that this debt must be realized (i.e. payed for) somehow. It would be interesting to compare the 88,000,000,000 barrels of oil energy debt with the US national debt (of course a difficulty is that it doesn't seem possible to convert oil barrels into to $ without making some assumptions on oil prices).

Anyhow, interesting post Euan. Thanks!

The issue is really an imports versus exports issue. Europe and Japan have been importing oil and other energy products, but they have been selling high valued goods in return. By doing this they have been able to keep their balance of payments in closer to equilibrium.

The US doesn't export nearly as much as it imports. In fact, we typically import about twice as many goods of all kinds as we export. Instead, we just issue more debt. This is the problem Euan is writing about. This is a graph illustrating the US balance of payments problem from a post I did back in 2007:

If we were using the oil we import to make high valued exports, there would be no problem. We are using the oil to burn in our cars rather than producing goods for export, so we have little to sell to the rest of the world.

Gail, I think it's a bit rich to say that the US has little to "sell to the world..."

The same argument might once had been used by Luddites to push back on the shift away from Agriculture to Manufactures.

"Who will buy all these 'things' you are making? Food will always be needed..."

Don't sell America short just yet.

Nick [British!].

What the US does best is write software, grow food, and entertain people. Of course, not counting casino capitalism and financial instruments.

But therein lies much of the problem, no?

In Mexico City one can buy any software package one wants for about $3.50 dollars.

One can buy DVDs of any movie one wants for a dollar or two, sometimes before the movies are even released in the U.S. Ditto music.

How does one protect intellectual or artistic property, especially in countries where it really doesn't behove that country's interest to do so?

If one takes a look at recent trade negotiations in Latin America, the interests of the entertainment and software industries always get raised. But in the end they always get trumped by the interests of the farmers and the bankers.

It's true, you can buy Photoshop in Thailand for $10.
However, Adobe is still doing quite well. I grew up in LA and have friends working for the studios, and one has been so busy, he hoped the show he was working on would fail-- no such luck, he is working 12-18 hours a day, and the ratings going up.
So, while intellectual property (my wife is an illustrator/artist, so I'm familiar with the issues) has been a huge concern, revenues are still being generated in the BAU model.
But agreed, the ag and finance people alway come first.

This is geting off topic but:

In some respects, the software industry reaps a hidden benefit by this pirate distribution network. By turning a blind eye to the lone individual who learns on a pirate copy, it expands the pool of competent users which in turn creates a powerful reason for commerical users to buy and implement the platform in their firms.

Software publishers could lock up programs if they really wanted too, but they know that they would lose a lot of market share if they did. Music and movies are basically non-productive indulgences anyway that now take on epic proportions of social and cultural energy. If those industriez closed down or downscaled because of copy pirates and it creates new opportunites for local live artists to entertain us then that has to be a good thing.

Relating this back to the topic at hand, the entertainment industry is one of the few exports that America has left but you can only sing for your supper for so long.

Gail: The graph does clarify the size of the problem we've always known is there. Stark realism. Good stuff. One quibble is ignoring relative currency values. It's probably quite fair to note that nearly all the upward trend in the red line since 2000-2003 is due to $US devaluation relative to trading partners. It might reduce the drama somewhat to have the graph adjusted for currency values (relative to what is a good question I suppose. If we could name the "what" then we'd also be naming the ideal basis for a genuine international reserve currency).

Ron, Japan, Germany and S Korea are all net exporters of goods. Thus some of the energy they import gets exported embedded in these goods - with some value added. (Italy I imagine is a basket case, I'm not sure about France - import uranium and export over-valued perfume and handbags?) None of these countries were blessed with the energy endowment of the USA, but have managed their deficits much better.

Per capita energy use in the USA is way above that of Japan and Europe. The US could have reduced that a little and lived within its means.

The reason I've been looking at this data is that the UK is about to replicate this American model. Well at least we are going to try - I think a disaster is headed our way.

In terms of BTU's, the EIA shows a slight decline in total US energy production, from 73 quadrillion BTU's in 1998 to 69.6 in 2005, but the real question I have is the quality of remaining US coal reserves.

On a BTU basis, the US is perilously close to becoming a net coal importer (EIA):

On a BTU basis, the US is perilously close to becoming a net coal importer (EIA)

Keep in mind that 500 TBtu is only about 2% of the total U.S. coal market. Reliance on coal imports is on a much smaller scale than, say, oil imports.

My rough estimate is that this number bounced back up in 2008 (I'd estimate 800 TBtu through the third quarter), when international buyers scoured the market for high btu coal and domestic producers sold quite a bit to Europe. With the economic contraction all that came to a screeching halt, and domestic coal is back in the dumper.

Btu quality is declining as bituminous coal reserves get mined out, while comparatively large subbituminous reserves remain. But with some signs of scarcity globally for high quality coal, it is hard to say how it will play out in the realm of U.S. net exports.

Don't confuse those coal seams that remain in the ground, but that are not as profitable to mine at the moment as the lower grade (but cleaner) coals of Wyoming, with coal that has been mined and is gone. Much of the change in the choice of coal to mine and use has been driven by the legislation dealing with the combustion of the coal, and its byproducts rather than because the coal was running out. New mines and coal-fired power plants take time to permit and install. At the moment, with an Administration that views new coal plants as more of a curse than a help, utilities are backing away from installing new facilities. That is fine, as long as there is a viable option to replace them, at scale, and in time to meet the demand. It does not mean that the coal has gone away, only that it has been transferred, in the ledgers, from a reserve to a resource.

Also, lack of growth in coal production has to do with lack of additional electric capacity. Furthermore, we used to use some coal in industrial production, but that has now moved offshore. This is a graph of electrical generation capacity by source.

Interesting Jeffrey. I just checked BP data, and they do compensate for declining energy content of coal in their tonnes to toe conversion.

As Headingout notes, we're in no danger of running out of coal, for better or worse. See

But the coal has fewer and fewer BTU's when burned, you can't just look at the total tons of coal, you have to look at the potential heat that the coal can generate.

No, we're using lower-quality coal because it's lower sulfur, so it's a bit cheaper to burn per BTU. We have plenty of high quality coal left (see my article, especially about Illinois Basin coal).

This just goes to show how little the U.S. has to return to the rest of the world in return for their investments in terms of tangible assets, not just paper.

Do you have any stats on Oil exports, broken down into light medium and heavy components? Are exporting countries, holding the lighter grades for themselves and exporting the heavier?

I'm not really sure what your trying to unveil with your "cumulative debt" information. What does this "cumulative debt" mean as you've considered it?

To me it only underscores the fact that the "energy deficit" values have been growing year-to-year.

I'm not sure you can analogize energy with say, owing your neighbor a cup of sugar. You didn't pay your neighbor for the sugar; it is reasonable for the neighbor to expect a cup of sugar (or other favor) in the future. Imported energy is exchanged for something agreed upon to have an equivalent value (dollars) at the time of the transaction; there is no debt associated with either party. Again, if I pay someone to mow my grass, I am not expected to mow their grass in turn; we had an agreement that was mutually fulfilled.

Have I missed your point?

OK - so the debt can also be abstracted to a $ value. How is it proposed that the $ debt be repaid?

Inflate it away and start over.

Since the money was sent back to the U.S. and loaned to people to buy houses, you are talking about complete destruction of the banking industry, since they own most of this debt.

And thus my argument that they will transfer the debt to the US government decouple the dollar from the US Economy via creation of a true global bank independent of national government and force the worlds governments into effective default taking a large share of the tax revenue in exchange for continued financing.

I simply don't see the global banking system allowing the major currencies to inflate themselves into oblivian.

I'm starting to think that they will allow the UK to self destruct but this is only to provide a dead body to use as justification of the formation of a global currency. The Yen and Australian Dollar are also other potential poster failure cases ala Iceland. But they can and will let a major currency self destruct in order to force the creation of a true global bank.

Now for some serious tinfoil hat time. One problem of course is that US military power was the driving force for the current situation such a global bank would be weak on the military front. The problem however is they don't need a standing army since we have these cool inventions called nuclear weapons some very small that make it easy for any disgruntled group to have a tremendous blackmail capability.

Generally the threat of nuclear terrorism is attributed to various radical groups however with my tinfoil hat firmly in place you can easily see how a combination of disgruntled bankers wanting to rule the world and groups ready and willing to die for their cause leads to a force with enormous military power rivaling the US. Its terroristic but its real. And of course you get a interesting result that if a military power responded via military force to a direct terrorist act they need even more money to engage in war.

Governments would find it difficult to overpower such a global banking system as they respond to threats from various groups and probably increasing internal strife. Thus money flowing into the right places can very effectively neutralize the governments military. Eventually if internal strife is large enough a military coup or radical government fully controlled of the bankers is easily doable. They would have the powerful tool of writing off the debt of the former government for the new government offering the new leaders a glorious future for their country.

The scary part is looking at history the most disturbing conclusion is that a tinfoil hat may not actually be required.

I think, in proposing "bankers with nukes", you are dating yourself. I'm more interested in seeing the near-future effects of robot soldier armies. Unmanned tanks, aircraft, helicopters, etc. etc. It means that large motivated military manpower will no longer be a deciding factor in any conflict, just industrial and economic might. Watch for eg. Sweden, Finland, Switzerland, etc. Would the US invade Canada to impose its energy policies if it had in storage 1,000,000 very efficient robot soldiers?

LOL :)

No my point is that a sort of consortium of like minded individuals could readily neutralize the military power of the US if a reasonable flow of the right weapons to the wrong people is allowed.

And not this does not actually require a true conspiracy just a decision to ignore certain destabilizing cash flows. Similar to how the laundering of drug money is ignored. Certainly the banking establishment is quite capable of profiling and finding shady flows of money. A moral banking system would make it very difficult to finance operation that are not approved. This says nothing about if this decision is right or wrong just that I see no reason that the banking system cannot control cash flow into any business if it can both determine the flow exists and wishes to staunch that flow. A classic example is redlining.

I'd argue that the bankers engaged in redlining where probably not directly racist they just recognized that their customers where racist and if the lent money to a minority the housing values would drop in a region leaving them with bad loans. They need not redline because of personal views but only hold a implict contract with their customers.

Although in this case the outcome is bad it shows the power of complex systems in that effective alliances and virtual contracts can be created between two parties that don't engage in a direct and probably tin hat collusion. They don't have to actually meet but can create a implicit contract for the benefit of both parties. The example I gave was actually this sort of virtual contract in the case of the bankers they simply need to ignore certain flows of money and then overtime of course they may very well recognize the nature of the virtual contract and could readily work to enforce it. Again in the redlining case we assume that the contract was implicit but became explicit as banking realized that this virtual contract was a strong or powerful situation. Redlining was highly profitable as it fed into white flight and expanding suburbs.
In fact partial breach of the contract by allowing other racists into certain neighborhoods driving the white racists into new housing built with bank loans eventually proved to be massively profitable.

Thus I argue that if the banking system and the freedom fighters or terrorist depending on your viewpoint find that they can successfully create a virtual contract that could strengthen in time. Examples of this are easy to find for example in the underworld as Italian mafia, Russian mafia and Mexican mafia form indirect then direct relationships and contract via interlinked transactions.

The mistake most tin foil hatters make is asserting that some sort of direct collusion is needed its not all thats required is for some powerful group to effectively publish a virtual contract and complex system work like markets putting like minded or mutually beneficial cooperative groups together without requiring some sort of overt director.

If you look in nature its full of all kinds of improbable relationships that are mutually beneficial. These sorts of virtual conspiracies are the norm not the exception.

Now whats really funny is the founding fathers of the US knew about this and insisted on separation of government to put legal barriers in place that would prevent the formation of undefined virtual conspiracies.
They did not do it because they could enumerate a finite list of issues but they recognized that certain mixes of power virtually ensured eventual corruption and fall of a government.

Thus I find it funny that the founders of America would be considered tin foil hat wearing wackos today.
Thomas Jefferson would probably be jailed or assassinated in modern America assuming he was not simply ignored and treated as a crackpot.

They understood the deep danger of the implicit contract.

Excellent comment. You've nailed the issue well. Thanks.

If oil exporters are smart, they'll pile up as many inflation-adjusted T-bills as they can against the day that their oil exports decline sharply, and oil is replaced by electric transportation and HVAC powered by wind (and solar and nuclear). In the meantime, the dollar will rise and fall, but dollar denominated T-bills will always be redeemable for US goods.

Problem is, TIPS are "inflation-adjusted" only in concept. Like most government entitlement programs (Soc. Sec., govt pensions, etc.) they are indexed against the CPI, which is one of the most heavily manipulated indexes there is. Google "hedonics", "substitution", "birth/death model", "owner's equivalent rent" and you'll see what I mean.

Over the long run, TIPS are sure losers. IMO you'd be much better off going long on energy and commodities and dollar-cost averaging (dislaimer: not professional investment advice).

"the CPI, which is one of the most heavily manipulated indexes there is"

My understanding is that other major countries use adjustments such as hedonics, as well. Asset inflation isn't easy to factor in, but "owner's equivalent rent" will, in the long run, be the same as just using housing prices.

" you'd be much better off going long on energy"

Perhaps in the medium run. In the long run, you'd lose badly, as substitutes such as wind and solar get cheaper, and as PHEV/EV's take over. In 30 years the price of oil is as likely to crash as it is to be higher.

"...long on commodities"

Are there any commodities for which Julian Simon would have lost his famous bet, at this point?

My understanding is that other major countries use adjustments such as hedonics, as well.

Whether or not other nation's governments also use it is, IMHO, irrelevant. I see hedonics as a dishonest "technique" used to torture the data to produce numbers that don't make politicians look bad during election cycles.

Asset inflation isn't easy to factor in, but "owner's equivalent rent" will, in the long run, be the same as just using housing prices.

If OER will "in the long run" average out to the same as real housing prices, then why not just use the housing prices to begin with? My answer: Because OER is yet another dishonest "technique" used to torture short-term data to produce numbers that don't make politicians look bad during election cycles.

For a more comprehensive look at how the BLS and government games inflation, I'd start here:

RE oil, solar and wind: when I said "energy" I didn't mean exclusively oil & gas. Any well diversified energy portfolio should include alternatives, and allocations should be periodically readjusted as appropriate. I'm not a Cornucopian and/or Julian Simon acolyte.

"Whether or not other nation's governments also use it is, IMHO, irrelevant."

It seems to suggest that it's widely accepted.

"I see hedonics as a dishonest "technique" used to torture the data to produce numbers that don't make politicians look bad during election cycles."

I understand. There have been several analyses/explations over at that I found reasonably convincing - you might want to take a look - here's one: is "PO aware" - here's the latest posting, which is about oil: . I think you'll find it interesting.

"OER is yet another dishonest "technique"

First, take a look at, and 2nd, do you agree that it's the longterm that matters to this discussion?

I looked at your source. It says: "Gross notes that if you were to strip out some of the hedonic magic since 1987, as his firm has done, the PCE (or personal consumption expenditures, which is Federal Reserve Chairman Alan Greenspan's favorite inflation statistic) would turn out to have been between 0.5% and 1.1% higher every year. "

That sounds like an average of about .8%. Even if you concede that all of the hedonics adjustments are wrong (and that's a pretty dubious proposition), that's not enormous - it's less than many load fund charges. I'd say the Saudi money would be pretty safe in TIPS.

" Any well diversified energy portfolio should include alternatives, and allocations should be periodically readjusted as appropriate."

Sounds very reasonable. Your phrasing didn't quite capture that, because investing in wind and solar companies isn't "investing in commodities". "commodities" suggests FF.

"I'm not a Cornucopian and/or Julian Simon acolyte."

I was just asking if, so far, if there's any major commodity for which his famous bet wouldn't have paid off?

I was just asking if, so far, if there's any major commodity for which his famous bet wouldn't have paid off?

That's an interesting question.

Inflation since 1980 has been 158%. Based on that, and on this article which has some information on commodity prices at the time of the bet, we can get some results:

  • Chromium: $3.90 per pound in 1980, down to $1.76 per kilogram last week, or just $0.31 in 1980 dollars per pound.
  • Tin: $8.72 per pound in 1980, down to $5.02 per pound, or just $2 in 1980 dollars.

Oddly enough, it looks like Simon's bet is still a big winner.


When you refer to inflation adjusted T Bills do you mean TIPS or something else?

I was in Middle School (Junior High) during WWII, busily saving for for a $25 war bond. There was considerable concern about the growing national debt. Our Civics teacher told us "Don't worry, we only owe it to ourselves". Unfortunately that is no longer the case.
-- I was a little ticked off after the war when the price of Coca Cola ice cream, candy and many other items doubled to 10 cents.

"do you mean TIPS"

Yes. About as conservative as you get.

As others have said this is bogus. The US has run a trade deficit. We have bought more stuff than we have sold. The trade however was denominated in dollars, not oil.

Euan is basically saying that all the income we had went to pay for plastic crap from China while we kited the oil. I could just as validly claim that our real exports went to pay for the oil while we kited the plastic crap.

IOW this article attempts to swallow a general problem in a specific case thereof. Not helpful.

Sure the debt is in dollar --- but what would stop someone from convert that to "future" barrel of oil?
If I am China or Japan that hold a lot of these US papers -- I would start pegging this IOU by buying oil future!!! At the current oil price, heck -- it's a bargain. It's not far fetched to say -- our debt is 11 Trillions or equivalent to 250Billion barrels of oil. Now, who the heck has that much oil?

So about one third of US debt may be attributed to oil imports?

our debt is 11 Trillions or equivalent to 250Billion barrels of oil. Now, who the heck has that much oil?

This is the essence of what I am driving at. These huge deficits are leveraged off cheap imported energy. And if the debt is to be repaid it will require a huge amount of energy to generate the GDP to repay it - and as far as we know that energy does not exist in easily accessible form.

" as far as we know that energy does not exist in easily accessible form."

The majority of manufacturing, and all services (software, entertainment, finance, etc) use electricity, not oil. IOW, most "tradeables". The US has plenty of electricity.

Transportation (with the exception of air travel), HVAC and industrial process heat can all be electrified, in the medium term.

Someone comments "Deficits don't matter".

I guess you will have to tell David Walker the former controller
general for the US that.

"As more baby boomers retire, the nation’s unfunded commitments in Medicare and Social Security benefits — which now make up approximately $43 trillion of our $56.4 trillion federal financial burden — continue to grow at a rate of up to $3 trillion per year. As deficits and wage gaps widen and inefficiencies mount, our tax code becomes increasingly imbalanced and unsustainable. As our country grows more dependent on foreign lenders, we give them more leverage over our foreign policy and give up more control of our own destiny."

To quote one of the worlds best economists
"There is not a nation in the world that has borrowed there way
to prosperity."
The USA will not be the first.
Deficits do matter!
Do you think the Chinese care about funding American medicare
and social security!
The free ride is over in the USA!
Start paying more tax like the rest of the world.
Pay for the programs you want.
Live within yours means, is that so hard.
The bigger they are the harder they fall and they will
fall big time.
Tell New Zealand deficits don't matter.
They hit the wall.
China is already getting nervous about dollars and American
fiscal irresponsibility.

The idea of an oil debt is at best theoretical, yet in reality means nothing. If a country, institution or individual can afford to purchase energy in whatever form, then it is theirs to do with as they see fit. No ledger is kept on deficit energy usage, however it is informative from the standpoint of showing overall energy usage and the amount the US is reliant on importation to make up the difference. A point that should act as motivation to continue raising the amount of renewable energy we produce to shorten or even fill the gap.

Oil debt is not imaginary, it is very real. The dollars sent over seas for oil, or things made out of oil, were spent on securities which purchased vast amounts of mortgages in the U.S. and elsewhere. These prices are in the process of collapsing, however, the 12 trillion in debt that was used to purchase them is still present and still owed by millions of people. Their asset values are collapsing, the debt remains resulting in a world economy that has no where to go but down.

Take a look at this chart.

You could "inflate away" this debt, however, that inflation would translate into extremely high oil prices and an even further downward economic spiral.

So guess what, deficits do matter. We have been spending like there was no tomorrow, but tomorrow is now here.

I don't agree.

One may argue with how Euan computed the number of "oil debt". However, I think it is meaningfull to try and quantify the size of national debt in terms of a physical reality (such as oil barrels).

Trillion or billion or gazillion of dollars doesn't really mean anything.

If on the other hand you think of the debt in terms of how much energy is needed to repay it, maybe that could be quite an eye opener.

In one of the thread's up from here someone translated the the US debt into 250 billion barrels of oil. How does that relate to estimates of oil left in the ground in nations across the world.

This post is probably one of the most beautiful examples I know of what I call partial substitution.
Partial substitution happens when you don't have a perfect substitute so you replace some uses of one item with another. Generally this means replacing a more desirable but expensive item with a slightly inferior substitute. In the case of NG once the network was built out its actually somewhat superior then the original oil however this is only after the cost of the NG pipelines was factored in.

Now the only problem with these graphs is they do not capture balance of trade you can't look at the US in isolation you also have to consider the balance of trade goods entering and leaving the country and the energy required directly to make them plus the support pyramid for the manufacturing process.
In general for the US this means addition substitution with Chinese coal and Mexican electricity. I don't know the fuel mixes in Mexico.

Its also missing the energy needed to export energy sources to the US so the EROEI for energy imports needs to be added in as whats really happening as you import oil for example is the energy required to extract the oil itself is not being correctly debited to the importing country.

Once you add all this in the situation is probably two to three times as bad as whats presented in this paper.

Now here in my opinion is the really interesting thing about partial substitution and its what I think happens in the case of finite resources.

The partial substitutes act first and foremost to depress the price of the item in this case oil.
Pricing pressure on oil need only be high enough to make it profitable to use substitutes generally this means oil prices are kept with an fairly steady narrow band. What this does is encourage the expansion of the substitutes in a HL like manner. However once the substitutes pass the first inflection point where the rate of growth of the substitute itself begins to slow i.e they are approaching their own HL peak pricing pressure can no longer be maintained. This serves to lessen the rate of further substitution i.e prices begin to converge for the substitutes and the original and margins narrow. This acts to increase demand for oil and result in a rising price. The net result is slow overall price increases and slow narrowing of the spread.

This situation works until it does not. One of the big factors for finite resources is that the partial substitutes themselves reach their own production peaks and the original oil also reaches its peak.
You can see that over time that partial substitution tends to synchronize the peak production rate of all the resources given they are tightly coupled via price they tend towards synchronization over time.

Maybe a way to view this is two rivers flowing together and mixing for a total volume if one river is increasing in flow its own flow tend to block and slow the other river until its flow rate declines. Thus partial substitution has a sort of dynamic damming effect ensuring that the system becomes synchronized and self regulating until it fails.

The overall system thus begins to fail when all the components approach peak as they approach peak the price differential narrow between the original and the substitutes. This narrowing at peak tends to rapidly increase the rate of synchronization so if one resource was still slightly in excess it faces rapid expansion to force the peaks into synchronization.

For the world as mentioned earlier globalization played a huge role in the overall energy balance so the rate of globalization itself tends to peak and drop.

Now what I find fascinating is that the way our financial systems is constructed is almost perfect to hide this situation in fact one could readily argue that because of the power of the US in the world and the fact that it was the one suffering this huge energy deficit in my opinion several times what Nate has calculated the financial system actually evolved the way it did because of the underlying energy problem. They evolved mutually as the energy deficit widened.

Consider a different world that used a gold standard but allowed currencies to be floated agianst gold not a fixed exchange rate. This gives the float needed to handle a complex system you don't need to abandon a gold standard. Next consider that global wages where flat and global energy extraction cost where flat.
In such a world you certainly still have partial substitution however you can't run the massive deficit the US developed. China would still expand because of its coal reserves but the difference between the Chinese standard of living and the US would be zero. Instead of this massive deficit building you would find the US standard of living declining or flat vs its energy resources and labor costs. Regional peak would have driven substitution with renewable energy sources and conservation vs expansion of partial substitution. In such a world profitability would depend on efficiency in both labor and energy thus simple economy of scale would not be the best answer instead a wide variety of more localized solution would dominate. As and example consider if Nigeria had the same energy usage pattern as the US it would never become a net exporter of oil.
In this different world where energy usage is probably lower for all it would probably be a small exporter. In fact in general direct exports of energy instead of conversion to value added goods would be viewed in my opinion as a waste of resources.

Now this society still exploits non-renewable energy sources but with a much much flatter HL curve and partial substitution of renewable approaches acts to minimize their use. One would imagine that eventually the full costs environmental etc of extraction of non-renewables would lead to a similar dislike of them like we have for nuclear energy. Culturally they would be viewed as dirty and short sighted solutions.

Now the problem we have is we did not do this instead we made non-renewable energy sources critical to our needs and worse we developed a financial system which allowed energy to be purchased with a infinite money supply via the raw military power of the US that allowed it to solve the alchemists dream and transmute hot high velocity lead into gold. Now we face the problem of developing and expanding renewable energy supply in the face of both declining resources and the collapse of a ponzi based financial system.
Worse of course is the fact that not only do we have a probably intensely painful transition ahead of us we also refuse to collectively recognize it.

Concerning the meaning of "energy debt" which I suspect was just a seed for debate (Euan?) there's a different interpretation.

When oil executives talk about reserves to production ratio (RPR) in the US, they often argue, "well! don't worry about RPR in country X. The US has been around 11 yrs RPR for the last 20 years! (I don't know the exact figure, but something of the sort).

So what they are saying is, "reserves grow, ... just look at the States, they've been running out of oil for 30 years and yet they never do"
But if the US had to actually provide all of its oil the RPR would start to become real. And in that sense the US lives on borrowed petroleum (yes, partly paid for and partly ... well, lets say ... unfairly paid to subjugated countries).

Now, that too means living beyond their means. What if Africa/China/India want the same level of consumption? Then the US would have to scale down their use of energy? In that sense, if world production declines and exporting countries consume more, the US would have to rely more and more on their own production (and that debt on the graph shows (very roughly) how far beyond their means the US is living).

(as mentioned EU, Japan, etc ... have also built societies that live way beyond anything the world can provide to humanity)

Looking at "energy debt" was intended to promote debate. But it is also a serious issue. In a world where measures of wealth and economic activity are so volatile and fragile I think reducing this component of US deficit to the units that created it provides a useful perspective.

I don't think this debt will ever be repaid, because amongst other things it would require significant growth in US economic activity that would require even more energy to create. Unless the US can figure out a way of creating vast amounts of low energy GDP that the world craves. I do believe that we are headed for inflation that will totally obfuscate the realties of global trade.


How is the primary energy contribution from nuclear calculated? It looks a trifle low - it should be about 40% that of coal.

To compared different energy resources you need to calculate the work they do, so electricity is 85%-200%(EV's to heat pumps) efficient(nuclear, wind, hydro), NG is 50-80%( electricity production or heat), fuel oil(heat) is 70-80%, gasoline 20%, diesel 25%, with coal 40%( efficiency of converting to electricity).Not sure how to count jet fuel? 100% because no other way of doing same work.

This makes oil( and biofuels) a much smaller component of work energy, so less to be replaced by nuclear, hydro or wind energy, for example using EV's.

Let's make this concrete: we could replace all light vehicles with comparable PHEV/EVs, and we'd only need to expand electrical generation by 17%.

That's how inefficient liquid fuels are, and how efficient electricity is.

I just used the BP mmtoe figures. I'm pretty sure these are based on thermal and not electric rating, thus in both coal and nuclear data, most of the primary energy is lost as waste heat.

Why do you think nuclear should be 40% of coal? Gale's chart on electric power generation seems to be similarly scaled to mine regarding nuclear and coal.

BP does convert nuclear to an equivalent thermal input - I forget how they do it. It's probably a little low, but it shouldn't be too far off.

Nuclear in the US provides about 40% as much electricity as does coal. They have slightly different thermal efficiencies, but the output is what matters, so a really accurate compilation would adjust for that.

Gail's chart doesn't account for capacity factor: for instance, Natural Gas only provides 18% of US electricity, but Gail's chart shows it at about 40%. Nuclear operates at about 90%, and coal at about 73%, so you'd also have to adjust for those factors to get a true picture of KWH market share.

Gail's chart shows that we have slightly less than 1,000GW of nameplate capacity. US average generation is about 450GW, so we see that the overall US capacity utilization is less than 50% - that's useful for people to keep in mind: we have lots of extra generating capacity, which would provide a lot of buffer, that would help make it possible to dramatically expand wind generation.

Originally posted some of these charts in a drumbeat but for those who didn't see them.

Here's what the EIA says will happen EIA Annual Energy Outlook 2009 (with projections to 2030)

Here's the three case world liquids supply summary

Click for larger image
And here's US oil production

Note the "Hubbert's Valley" :-)

And Nat Gas

And coal

Total Energy consumption mix

Party on Dudes!

Oh, yes and here's CO2 emissions

Yep they carry on rising. Maybe not party on dudes then...

So a low oil price is going to lead to higher production?


Their "logic" seems to be that a low oil price implies there is plenty of oil. The high oil price case is really their "Peak Oil" case and actually their real central projection even though they don't call it that - or that's what datamunger (who seemed to have knowledge of internal EIA workings) always claimed.

However I can't figure out why they think tar sands, shale oil etc production will be greater in the low price case. I get the feeling they just have certain totals they have to reach so they just fill in the blanks to match.

I don't know why anyone relies on EIA's projections - it's pretty clear that they're not useful.

What I really don't understand: why do some people reject the EIA's projections for fossil fuels, but use the EIA projections for renewables like wind and solar?

Tell that to the badly misled car manufacturers, bankers, economists, politicians, IPCC, journalists and, in fact, everyone else other than us peak oil nutters.

I have a funny feeling the blame game will shift some point down the line. The EIA, IEA, CERA etc should keep this in mind.

"Tell that to the badly misled car manufacturers,"

Yeah, I remember GM specifically citing the EIA several years ago.

Now, of course, GM has explicitly acknowledged Peak Oil, and has centered it's long-term strategy around the Chevy Volt. Toyota has done the same with the Prius.

That's the two largest car companies in the world - it's encouraging.

The concept "live beyond our means" makes no more sense here than it does when I sprinkle Cinnamon (from Saigon, according to the label) into my coffee (also not from America, almost always, Kona notwithstanding). Cinnamon will not grow in my back yard, not here in Massachusetts.

Buying things you lack and selling things you have is the essence of trade, not an evidence of sin.

I wonder how the first chart would look if it included the energy contained in goods which the US exports (including food, aircraft and other vehicles)? I realise that on a primary level the US appears to consume more energy than contained in US-sourced coal, oil, nat gas, and nuclear. However, the US exports a lot of this energy in finished goods.

Energy consumption has grown, in part a reflection of growing population that underpinned economic growth.

Two notes:

  1. It's entirely due to population growth. US BTUs per capita was the same in 2006 as in 1971.
  2. Population growth is not necessary for economic growth (e.g., Germany/Japan before this recession).