258 comments on The Slavery of Oil
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258 comments on The Slavery of Oil
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There is considerably more useful information contained in the data that I used for my article, information that is worthwhile to be explored. However, I didn't want to water down my story by going off on different tangents simultaneously. For this reason, I saved these additional observations for the discussion.
I marked a few more countries on my graph:
There is a cloud of countries located just below Switzerland. This set includes three of our direct neighbors: Austria, France, and Germany, as well as the United Kingdom and Japan. All of these countries have similar living standards, and they are located at similar latitudes, i.e., have comparable climates. It is therefore not surprising that these countries consume comparable amounts of energy per capita. You would also expect that they are about equally wealthy.
The anomaly is Switzerland. In economics when applying similar experimental conditions, we expect to obtain similar outcomes. Whenever we encounter an outlier, the alarm goes off, and it doesn't matter whether the outlier performs considerably better or considerably worse. The fact that one country is able to get significantly better results is a reason for concern. What are they doing that the other nations don't? Why don't the other nations perform better, when this is evidently possible?
Why are the Swiss wealthier than the Austrians? It is not because we produce better chcolate bars (which we do). In fact, it has nothing at all to do with our production. We would generate approximately the same wealth by means of our chocolate bars, baby food, and Tamiflu as the Germans or the Austrians are capable of generating. The difference is to be found in our banking sector. The entire additional wealth of the Swiss over and above that of our neighbors is generated by our banks. No wonder that Mr. Merz is a bit nervous right now. The good news is that, in spite of our additional wealth, we are as frugal as our neighbors in terms of our energy consumption.
Then there is a second cloud of countries further to the right. This set of countries includes Australia, Belgium, the Netherlands, and Sweden. They are about as rich as our neighbors, but they are consuming considerably more energy per person, in fact, they are consuming roughly 50% more energy per capita than we do.
Why is that? There is no good reason for it. It simply means that these countries have done less to save energy. One could argue that Sweden is located at a higher latitude, but those parts of Sweden where most of the people live don't experience winters that are harder or longer than the winters that we get here in Switzerland.
Now let's look at two countries that aren't included in the graph.
Norway = Sweden + oil. Because of the oil, the Norwegians are more wealthy than the Swedes. They have a per capita GDP of $64,566. They are wealthier even than the Swiss. Unfortunately, they are also more wasteful in their energy use. They consume 108,665 kWh per person per year. They are worse than the U.S. Americans and almost as bad as the Canadians. The Norwegians make 60% more money than the other nations in that group, and they are also spending 60% more energy. Why are the Norwegians spending more energy than the Swedes? There is no good reason for it. They do it, because they can.
Luxembourg = Belgium + banks. The banks play an even bigger role in Luxembourg than in Switzerland. They make the citizen of this small country the richest people on this planet. They generate a per capita GDP of $84,161. Unfortunately, the people of Luxembourg are also less concerned about wasting energy than their neighbors. They spend 104,072 kWh per person per year, more than twice the amount of neighboring Germany. There is absolutely no meaningful reason for it. It simply means they don't care.
The biggest energy wasters on this planet are the United Arab Emirates. They spend 154,005 kWh per person per year, while generating a per capita GDP of only $28,202. This is cause for alarm, as we shall see.
We notice further that the countries above the straight line are mostly developed nations, whereas the countries below the straight line are mostly developing nations. Canada is the exception to the rule.
An energy price of $0.37/kWh will hurt those countries much more that are below the straight line. As most countries (except for the net energy exporters) have to buy their additional energy on the world markets, a country located much below the straight line will get energy-starved much earlier.
For example, Uzbekistan spends its entire GDP on energy already at a price of $0.03/kWh, and even the rich United Arab Emirates get bankrupted at a price of $0.18/kWh. In contrast, Switzerland spends its entire GDP on energy only at a price of $1.13/kWh.
Consequently, as we move over the oil peak and energy becomes more expensive, the developing nations will drop out of the rat race much before we do. Even China gets bankrupted at an energy price of $0.12/kWh.
I take it the $0.37/kWh is for the gross oil inputs to the country. If you figure in useful energy, assume that only 20 percent of the input oil is turned into some kind of useful energy (after being ran through an engine, chemical energy to mechanical energy). That turns it into $1.48/kWh. Also, not all the inputs are used specifically for energy production. Figuring in useful work will give you a better idea of when the economy will not be able to support the energy. I would think somewhere around 6%-9% of GDP spent on energy would be too much for modern societies.
It is the price at which we acquire primary energy, but it is more than just the energy that we consume directly in the form of energy (heat, electricity, fuel). It also includes the energy that we use for the production of materials, such as the energy used up in the production of cement.
What is the highest percentage of our GDP that we can spend on energy is indeed the 500 Dollar question. Assuming that we can spend 100% of our GDP on energy is evidently silly. We need health-care, for example. This alone already consumes more than 10% of our wealth in some countries. We need schools. We need housing. Traditionally we were used to spend up to one third of our income on housing.
Your suggested numbers of 6%-9% are too low. We are using already more right now. You find a useful graph in the paper by Charlie Hall that was referenced already further down in the thread:
Over the years, the percentage of our wealth spent on the procurement of energy will undoubtedly rise further. It may rise to a value of 20%. Any number above 30% is probably unrealistic.
Good article, thanks Francois.
I remember reading a study (by Soc Gen?) that showed oil prices would have to rise to around USD 180/barrel to match the same share of GDP as in the previous oil shock and may have posted this on TOD.
Also I seem to remember that Euan has shown a much higher percentage was spent on energy in the past.
Growing up on the edge of the Appalation coal mines in SE Ohio, we knew the song "Sixteen Tons" http://en.wikipedia.org/wiki/Sixteen_Tons
all too well. Especially the phrase "I owe my soul to the company store" was used in daily speech. I was educated on the system before I was 10..
"You load sixteen tons, and what do you get?
Another day older and deeper in debt.
Saint Peter, don't you call me, 'cause I can't go;
I owe my soul to the company store..."
Cheers from Munich,
Dom
Ever read the treatise below
http://www.ohgen.net/ohathens/coal.htm
Quite interesting 1980 analysis of the Hocking County Coal fields.
Nelsonville native here.
FF
Well God bless you 'Flow! Grew up 20 Miles upstream on Rush Creek, the "bigger" branch of the Hockhocking River, near Bremen, Ohio. South of Logan (where we did our Christmas shopping) was noman's land for all my doings. Pappy worked at South Central Supply for a (short?) while. I'll be at the homestead from 27th of May to 9th of June.
If you want to reminis, send me a note..
Cheers, Dom
ps Great article. Gives a good sense of what was going on while the mines were producing. My sister (Lives near New Lexington) says the trains are trucking out the coal once again. !!
oops wrong thread
Nice article, Francoise
The quote below caught my interest;
My emphasis
Did you ever consider that there might be a structural difference with regard to industrial activities between the countries which may help explain differences in energy consumption before you draw firm conclusions? Norway has the benefit of huge amounts of hydroelectric power which to a large extent is used for production of aluminum and within the electrochemical industry.
I think a more fair comparison would have been to look on households energy consumption (adjusted for geography) before any conclusions was drawn.
As you are a professor, Francoise I hope that you are able to document the statement above in this post.
Specific energy consumption (energy consumption per capita) is not evidence of waste.
it is probably the downstream refining industry. Most petroleum producers spend a large amount of energy making fuels and chemicals for export. A better accounting system would assign those costs to the consumer country.
You bring up a valid point: gray energy.
If a country has an extensive heavy industry producing goods for export, this will show up in my statistics as additional energy spent by that country on goods that are in fact being consumed elsewhere on the planet. Switzerland is a net importer of gray energy. We import about 30% of our energy in the form of gray energy, which doesn't show up in my statistics. If I understand you correctly, you claim that Norway is a net exporter of gray energy, in which case, there may indeed be an understandable reason for spending so much more energy per capita.
Norway is a net exporter of aluminum and some other energy intensive products from the electrochemical and petrochemical industry.
In this way you may view Norway as a net exporter of hydroelectric energy (though this energy is embedded in aluminum or other products). One of the reasons for establishment of aluminum plants in Norway (which also goes for Canada and Iceland, just to name a few others) was the availability to cheap and plenty hydroelectric power.
Nat gas consumption in Norway is primarily within the petroleum industry generating electricity for (amongst others) pumping the oil either to onshore facilities or onboard tankers.
Nat gas is extensively used offshore also in the separation process of oil, water and nat gas and to recompress the nat gas for pipeline transport or for reinjection into reservoirs to increase recovery.
To explore for oil and nat gas also requires energy which is accounted for in the total Norwegian energy consumption.
Refineries, petrochemical plants and gas processing plants also uses electricity from hydropower.
Norway presently also have a strict building code for insulating houses.
For Ormen Lange (the second largest gas field in operation in Norway), the high pressure needed to deliver the nat gas to customers is generated by compressors running on hydroelectric power.
As of now Norway is a net exporter of;
- Oil
- NGL's
- Nat gas
- Coal (though small amounts)
- Hydroelectric power (in some years directly), but also embedded in exported products (what some refer to as "grey" energy).
To be a net energy exporter requires some energy.
Yep. This damn EROEI once again.
The BP statistics don't include the oil that Norway exports in the consumption statistics, but it does include the oil that is needed to produce the oil that Norway exports.
I quickly looked at EIA data. It seems that Norway exports about 10 times as much oil and gas as it consumes locally. Assuming an EROEI of 20, which is a reasonable guess, Norway spends about 5% of the exported energy to produce energy. This would then be almost 50% of what it consumes locally, which would almost explain the 60% higher energy consumption in comparison with Sweden.
The numbers aren't easily comparable, so I may be off by a few percentage points. I would need a complete Sankey diagram for Norway to do a better job. However, the EROEI of exported oil together with other types of gray energy (such as the energy spent in producing aluminum for export) may indeed account for the higher energy consumption.
It's a similar story for Canada, which is a large, cold country with a sparse population and relatively large transportation costs for goods. Canada exports about 55% of natural gas production (NRCan data) and about 75% of its oil production (BP workbook).
An excellent post. Thank you.
Perhaps the next step in this analysis would be to adjust energy usage based on import/export. That is, if a country is a net importer, such as the US, that country should, logically, be assigned the energy used to produce and transport those imports. Likewise, countries that are net exporters should receive an adjustment downward to reflect that the fact that some portion of their energy use is going to goods and services that they are not actually using.
I have seen this done for carbon emissions and, personally, I think it presents a more accurate picture of usage based on actual demand. It doesn't allow the industrial net importers to offload their impact/demand/consumption when they offshore their work force, etc. In short, it generates a consumption-based distribution... "costs" are assigned to the consumer of whatever.
Not sure what the best way to do this would be because I haven't thought about it at all. A simple method would probably be to adjust energy use by the percentage of import/export relative to GDP. If country X is running a 5% trade deficit relative to its GDP, you would increase its energy use by 5%. While not terribly accurate, this would tend towards reasonably scaled adjustment.
A more accurate (and much more complicated) method would be to determine imports/exports on a per-source country basis, and then calculate energy used based upon the relative value of that trade to the exporting country. For example, if the US imports $X of goods from China, determine what % of China's GDP is represented by X, then take that % of China's energy use and shift it to the US. Note that this works both ways. Even though the US is a net importer from China, its own energy use does need to be decreased by the amount of energy used to generate exports to China. This same exercise would be done for every country relative to every trading partner. Obviously, this is much more complex as it requires tracking import/export breakdowns on a per-country per-partner basis. But it would be more accurate. Probably. ;-)
I'm sure their are other better ideas, but those are what came to mind reading the above comments.
Brian
Yes! We should include the gray energy in the energy statistics. This would be more honest. However, BP has no interest in doing that. They are only interested in accounting the energy as it gets paid. They don't care about local energy (e.g. your photo-voltaic panels on your own roof that never passes through any energy counter), and they don't care what happens with the energy after it has been paid.
This may not work very well. For example, Switzerland has a trade surplus, i.e., we make more money on our exports than we pay for our imports. Yet we import about 25% of our overall energy in the form of gray energy.
just a little niggle, quite off topic.
The man is called Francois.
Francoise is a woman.
If you ever met a frenchman called Francois (pronounce fra(n)swa), and you call him Francoise (fra(n)swah ze), I doubt your encounter would go quite the way you envisaged.
While it is nice that "economists" recognize the importance of outliers... it would be nicer if recognition of such occurred on axes that are statistically valid. Your normalisation of both axis on a per capita basis of course invalidates that assumption of parametric statistics. The data are not truly independent.
Which brings me to my main point.
While it is true that many countries (I'm Australian) could do more - blanket statements like this ...
should be tempered by some recognition of some absolute facts.
Australia is an arid continent of 7,617,930 square kilometres
Switzerland is a land locked nation of 41,285 square kilometres TOTAL.
180 Switzerlands fit into the entire continent and about 2 Swittzerlands fit into the smallest Island state of Tasmania.
Being a landlocked nation it is nice and convenient that all the surrounding countries obligingly provide the transport links to the minuscule borders.
I suggest a different normalisation. Make the energy axis a per area one. This will make the axis independent... and seems logical given the large part that transport plays in a countries energy consumption (normally!) you can put your eye candy line on it then...
They might not be "good" reasons... but I suspect there are reasons why a country that derives a vast measure of its "wealth" from secretive banking arrangements might appear as an outlier in this kind of analysis.
True. My remark was directed at the neighboring countries: Belgium and the Netherlands. There is no reason that is obvious to me why Belgium should consume 50% more energy per capita than France or Germany. Australia is a quite different case.
There might be a partial reason for Luxembourg: VAT on gas. Many people from border countries (France, Germany, probably also Belgium) are coming to Luxembourg to fill their tank. I do however not have numbers, but since Luxembourg is a small country it is probably not negligible.
Luxembourg is truly a special case both for energy and GDP calculation since 40% of its workers are non-resident of Luxembourg and most cross the border from France, Germany and Belgium everyday to work in Luxembourg (http://www.statistiques.public.lu/fr/population/index.html). For example there are 137,000 French "frontalier" (trans-border worker) working in Luxembourg which has a total population of only 490,000. So the energy usage and GDP output should take in account the contribution of these outsider but it is difficult to evaluate it precisely. The frontalier contribute to the industrial side of energy usage but little to the residential one. Also they spend part of their money in Luxemburg (food and cheaper goods in general) and part in their home country (home financing, most taxes...). The simplest way would be to remove 40% of the industrial and transportation energy usage but not to the residential. To ajust the GDP would require more investigation in the salaries taken home by these workers and the tax/social security agreements between Luxembourg and its neighbors. Switzerland also has a lot of trans border workers but less proportional to its population.
Wouwh. I didn't know that. I knew that Luxembourg has the highest percentage of foreigners living in Luxembourg (Switzerland coming in second), but I didn't know that there are so many daily border crossers (Switzerland has many seasonal workers, but not many daily border crossers). This indeed falsifies the statistics significantly and may explain the anomalous statistics obtained for that country.
Thinking about it some more, the effect of the daily border crossers can actually be assessed quite easily.
In reality, there are 40% more people participating in the economy of Luxembourg than are counted in the population statistics. For this reason, both the per capita GDP and the per capita energy consumption figures are inflated.
We should divide the per capita GDP by 1.4, leaving Luxembourg with a true per capita GDP of $60,000.
We also need to divide the per capita energy consumption, but by a smaller factor, since the daily border crossers use some of their energy in their houses/apartments outside Luxembourg. It might be reasonable to divide by a factor of 1.3. In this way, the per capita energy consumption is reduced to $80,000. This is still more than the energy consumed by their neighbors, but no longer by as outrageous an amount.
The same, by the way, holds also for Switzerland, because our seasonal workers (mostly waiters in restaurants in tourist places and people working in construction) are not counted in the population statistics either.
Good thinking. This would be a form of gray energy also. However, I don't have any numbers to quantify this effect, and I wouldn't know any easy way to find these numbers either.
There are general elections in Luxembourg in June this year, so some points have been discussed. Taxes on gasoline and diesel seem to be a very important income for the state. A minister said that he could not increase more the taxes because it would have been dangerous for the state budget.
Another problem of Luxembourg is a poor public transportation system and a not very efficient urban planification. You need your car to go to work, to go shopping, to go to the restaurant or the movie theater. A tramway should be built, but it looks like the finacial crisis will not make it possible.
In Luxembourg, it is easier to get help to produce renewable electricity than to reduce the amount energy you need. Access to energy seems more important than saving it.
Luxembourg politicians are very good at having great ideas that are too expensive or impossible to realize, so you stay with the old thing.
That Uzbekistan is already spending more than their GDP on energy according to these figures shows there is a big flaw. My guess is that GDP is a largely meaningless number. GDP is inflated by all sorts of economic activity that doesn't actually produce anything concrete of value.
If I grow tomatoes and eat them I have not created any GDP. If you raise chickens for your own eggs you have not created any GDP. But if I sell my tomatoes to you instead of eating them and you sell me your eggs instead of eating them, we affect GDP even though it is the very same tomatoes and eggs being eaten as before.
A lot of the changes that will likely come about as a reaction to rising energy costs, localization, higher efficiencies, reduced waste, etc. will reduce GDP.
I've heard the argument that the US is in a much better situation with respect to deficits and debt then in the past because our GDP is so much larger. I expect that here too GDP will prove to be sadly irrelevant.
What you just described was the overstatement of GDP resulting from a service based economy. Another aspect of the USA economy is the massive size of the health care and government sectors (including defense spending) adding to GDP yet producing little of quantifiable value (the USA life expectancy stats are unimpressive).
No it doesn't. And the fact of GDP being inflated by pseudoproductive activities can't account for that gap anyway (because wrong direction).
The correct interpretation of the Uzbekistan data would surely be either: (1) it has a negative national balance sheet, heading down the sink rapidy; and or (2) it has a lot of cash income that is below board, so not figuring in GDP, such as drug trafficking, people trafficking.
Reminds me of when I mentioned to a local youth about xx area having the lowest income in the country, and she said that's because the drugs dealing isn't being counted in that income.
There is probably some truth to the objection. The energy statistics don't include energy produced locally at your house that never passes through any meter, and the GDP statistics don't include trade that is based on bartering.
I would assume that a country as poor and rural as Uzbekistan has quite a bit of bartering going on. In fact, bartering may be the dominant form of trade in that country.
Thus, if you have a rural community that produces most of what it needs locally on its own fields, sharing with their neighbors the produce of their fields, such a community will show almost zero GDP, but they still need some energy, e.g. electricity for their houses and government offices.
How do they pay for their electricity? Probably in the form of chicken eggs.
Also, corruption is rampant in Uzbekistan, so rampant in fact that it may significantly falsify the GDP statistics.
Thank you, Francois, I have been working on this thesis for awhile also and it is interesting to see where the price inflection point is. It is critical since at some price point the economic system starts to malfunction after which point energy prices can fall to zero and there are still very serious consequent problems ricocheting through the system.
I agree that relatively 'low' prices start compounding problems, even in the USA. I suspect - but I cannot prove - $55- 60 per barrel prices start unbalancing transport and commercial functions which ripple outwards; the current price level may be enough to cause another round of deleveraging in the credit markets as debt service for many companies requires a large percentage of company aarnings, added to this is higher energy cost and there are only so many employees that can be fired until the doors of the business must be closed.
Actually, I find it somewhat insulting (to Swiss people) calling the Swiss banks mainly responsible for the wealth in Switzerland.
After all Denmark has roughly the same GDP per capita as Switzerland without banking. Now, does this mean, that the Swiss people were only able to reach the same wealth as Denmark because of their non-producing banks? And is therefore the rest of Switzerland's economy much worse than the Danish economy?
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita
Not to mention: The average Swiss is not necessarily wealthier than the average Austrian, because most Swiss are not bankers.
Also, Austrians have lower living costs (rent, health care, food).
Indeed. One of the criticisms of GDP as a measure of wealth is that the GDP is not cost-of-living adjusted.
The Swiss are currently more wealthy than either the Austrians or the Germans, because the cost of living in Switzerland is only about 20% higher, whereas the salaries are more like 40% higher. One would also need to take taxes and social services into account, which vary quite a bit in different countries.
Yet, I don't see it as insulting. The banking sector is a service activity like any other. I don't know what particular economical niche the Danes have found to be able to generate a higher GDP. For the Swiss, the economical niche is the banking sector, which in recent years has benefited from the fact that Switzerland is a stable political island within the EU with a separate and highly stable currency.
Thanks for this. Regarding the UAE, The dark side of Dubai is an interesting read.
Wow. "Interesting read" indeed.