Matt Simmons on Bloomberg
I was talking about the Matt Simmons story in BP and the Giant Blender. This is his Bloomberg interview. The Bonnie storm is bad, but if this story is true, a hurricane in the gulf is the least of BP’s problems, not to mention the US Administration. What if they knew? What if this is the Oil Industry’s Lehman Brother’s moment? Just imagine if it turned out that the largest of BP’s US shareholders, a little operation called BlackRock, had close connections to members of the Obama administration. When I say “little operation” I mean about $3.15 trillion under management, which is nearly a $trillion bigger than the Federal Reserve. But what’s spooky, in a Jason Bourne kind of way, is the friendship between BlackRock CEO Larry Fink and Timothy Geithner, the current Secretary of the Treasury. It would be weird if Larry Fink, who was the person who pioneered the Mortgage Backed Securities Market while he was at First Boston, and to whom Mr Geithner turned in his hour of need when Bear Stearns went into meltdown in March 2008, was mixed up in some sort of Oil Industry meltdown as well. I mean, that’s just a terrible run of bad luck. You invent a completely clever way to sell Mortages as a kind of faux investment, and you accidentally bring the global economy to its knees. Then, just when you think things are getting straightened out, you buy into a firm that is drilling for oil in the Gulf, for energy security. Makes sense. It’s really energy patriotism, in a way. But then that stupid bunch at Transocean go and blow the thing up. Just bad luck Larry.
I thought the profile of Larry Fink in Vanity Fair was, well, fair…
BP and the Storm of Idiots
Is this possible? The Communications people at probably the most beleaguered large corporation on earth thought it would be okay to (badly) Photoshop an image of the control room. Make the boys at the screens look busier while they’re stopping the oil spill. And then say that it was just some kid showing off. Yeah, that’s reassuring. We are handling the greatest environmental disaster in America’s history, but we thought it would be okay to let someone play with Photoshop. Not really. First you will look like (even worse) idiots, and second, there’s a tropical storm developing in the Gulf.
But when you look at this Jon Stewart video it all becomes clear, in a terrifying sort of way…
Note to Tony BP
You went sailing? You were racing your boat, Bob, in the JP Morgan Asset Management Round the Island race? I can understand the stress you’ve been under, but if that’s your level of insight into the public mood you need to make an appointment with your therapist for Monday. And while you’re at it, fire your publicist.
Nature is not a Machine
Nature is not a machine. I’ve noticed a growing hubris in the way in which people are talking about the BP catastrophe, not least Mr. Obama, who although he’s a lawyer, should know better. We are listening to these people talking about ‘putting it right’ in the same way that one would fix a broken watch. Replace broken parts and all is well. This drive for the metaphorical arises from the way our cognitive systems seek pattern, which is mostly an evolutionary good, but it has its limits. The wrong metaphor can lead us to desperately wrong analysis.
Nature is not a machine. There are no spare parts. There is no fix. Rather, it’s a cohesive biological system of unimaginable complexity. What has happened in the Gulf of Mexico has changed the environment – forever. The system state has been radically altered and the expectation that it can be put back the way it was is scientifically naïve. I’m sure there will be remediation efforts, but that will not, ever, put that coast back the way it was. This conceit of nature as our pet machine is clearly of machine age origin, but now that we have so much better metaphors for the way the world works, why do we insist on continuing with the same old nonsense? In the last 30 years, with the advent of genetics, the language of modern biology provides us with far more useful metaphors – and modes of analysis. We have nudged a complex ecosystem out of equilibrium. It will eventually find a new equilibrium, but that may not include the existence of blue fin tuna. You were tired of sushi anyway, right?
This is a map of what the Gulf looks like. Notice that it looks a lot more like a nervous system than a machine. It is. It is the nervous system of the beast we’ve made.
(Image thanks to Matthew Baker at ESRI Educational Services)
If we look at this as a biological system whose health we have compromised we can start thinking in terms of the way in which biological systems recover – they heal. And that healing process leaves scars. Life continues, but not with the same vigour as before. And sometimes recovery is impossible and life ceases. The Southeast coast of America may partially recover, but some of the more fragile populations will not. The complex web of life that makes up that ecosystem has been diminished, and pretending that it’s all just going to get taken to the mechanics and put right is offensive. Pretending that it’s just a matter of the BP executive writing impressive cheques makes it worse.
While we’re at it, why is the Gulf of Mexico a catastrophe and Alberta is a business opportunity? Every single peak oil geologist and ecologist I know has been on about what the downside of the oil production curve will look like since Colin Campbell started the Association for the Study of Peak Oil. No mystery. No magic. They have been saying for at least a decade that it will make parts of earth look like bad science fiction. Irrevocably damaged/destroyed ecosystems – which are not easily isolated from the larger planet wide ecology – will inevitably leak their toxins. What cancerous horrors await the good people of Alberta we can only imagine. Massive bird casualties are routine. But no one seems to think of it as a catastrophe.
Let’s put it in context. The largest dam in the world is China’s three gorges project. The second largest is in Alberta. It’s called the Syncrude Tailings dam. It contains 540,000,000 cubic metres of toxic sludge. That is one tailing pond. It total Alberta has 840,000,000 cubic metres in tailing ponds, covering 170 sq. km. This is an Edward Burtynsky photo of what that looks like…
And you thought Mordor was scary? So while I’m not in any way trying to diminish the scale of what is happening in the Gulf, I think it’s good to remember that it’s business as usual in Alberta. Maybe we’re at a turning point. Maybe the BP spill is the thing that finally makes us think about what we’re up to. Oil is killing us, because we are part of the same biology. We are not a machine.
Links:
Street Fighting Man
Everywhere I hear the sound of marching, charging feet, boy,
‘Cause summer’s here and the time is right for fighting in the street, boy
Jagger Richards 1968
Finally I’m back. My Atlantic trip was extraordinary and I ended up doing two deliveries to and from France, so in all I covered more than 6000 miles.
Before I left I wrote a post called 2010: The Next Leg Down. I wanted to go over it and see how I’m doing in the trend forecasting business.
Oil and the Deep Horizon rig: I’m still waiting for the oil price spike. But the good people at BP are doing their best on my behalf, bless ‘em. Or rather, Transocean. Although Transocean is not well known publicly, it’s the largest rig operator in the world, with about 300 rigs. What makes this accident so important was that it was an ultra-deep drilling operation and if the US bans more ultra-deep in the Gulf of Mexico it will impact oil supply within a year. As the cheap easy oil disappears we are faced with difficult choices: Just how much ecological horror do you think you can stand to stay on the highway? We need to remember that Deep Horizon was no mundane oil operation. They were tapping into the Tiber field – 40,000 ft down. It was the deepest vertical well in history. You could lose Everest and have 13000ft spare in that hole. This was the Apollo mission for deep drilling. Was it dangerous? Of course it was. Whenever we take one of those giant steps for mankind, it’s inherently dangerous. But in all the fervour to get to the 70 billion barrels deep in the Gulf, we chose to suppress that information. What happens if we have a big hurricane season this year?
Nukes: While the west mutters and hovers, Asia is going all out. It will be interesting to follow the split in attitude. Just this week, Monju, the giant Japanese breeder reactor was brought back online after a 14 years of repair. China, which has 11 reactors in commercial production, has 20 under construction. I’m waiting for the argument in the West to get much more heated as people start to wonder how we’ll compete with nuclear Asian countries in 10 years.
Immigration: I get a gold star. In the UK immigration has become the biggest issue in the election. It was an immigration argument with Mrs. Duffy that caused Mr. Brown’s worst moment in the campaign. As we hit the next leg down, and the European economy buckles under the sovereign debt bubble, which will make Lehman brothers look like the teddy bear’s picnic, immigration will turn ugly. Big right wing gains across Europe. As southern Europe goes into full street fighting man mode it’s only a matter of time before they decide that it’s the foreigner’s fault. Look out.
I’m off to the Frontline Club to have a glass of wine and watch as Britain has a revolutionary election, involving three white guys instead of two. No, really. It’s time for real change. Honest.
2010: The Next Leg Down
Before I go off on my transatlantic sailing trip next week I thought I’d make some forecasts for 2010: The next leg down.
Oil and Globalization: First thing is our reaction to the arrival of triple digit oil prices. Right now oil is at $80. I’m not expecting a miraculous recovery in demand, but a political crisis could easily drive prices into triple digits. If so, whether or not you actually believed the news tripe about recovery, oil over $100/barrel will begin the next leg of the post peak oil crisis. Right on schedule. The same process will be broadly applicable to most of Western Europe, the US and the rest of the developed world, but my immediate concern is Britain. This is the year when transport begins to trump labour arbitrage and the global part of globalization starts to look shaky.
On the face of it, this is disastrous. The OECD industries have come to rely on almost completely on foreign manufacturing sources, obviously for the most part China. But in fact it’s a tremendous opportunity, because except for bankers and entertainers, globalization has been a disaster for wage earners. The myth of the service economy has run its course. It was largely an artefact of cheap oil. It brought cheap goods, but the side effects have been an ecological horror. According to a recent report in the Guardian, major companies caused $2 trillion worth of environmental damage just in 2008.
Sir Richard, my new best friend: Probably the most important signal for Britain is Sir Richard Branson’s discovery of peak oil. Dollar short and a day late, but he may be the person to make it mainstream in Britain. He’ll be our Al Gore. It’s a pity that Matt Simmons, Colin Campbell, Jean Laherrere, and all the rest of the ASPO folk couldn’t get any traction for the last decade. Never mind, now that Sir Richard has noticed and the Industry Taskforce on Peak Oil and Energy Security has been formed at the Royal Society finally we’ll see some righteous panic.
Re-Industrialization: I’m expecting to see talk of the rapid re-industrialization of Britain. The flag wavers for the service economy will be ushered off the stage. Despite being the economic darlings of the last decade or two, suddenly they’ll be seen as hopelessly out of touch. Start watching for some new clever marketing speak. Right now in glass walled offices with aluminium furniture, there are eager young marketing drones with perfect complexions, dreaming up the sound bites for the new new clean energy renaissance: Social enterprise resourcing , Clean Tech revolution, Cloudsourced inventory control, AgroUrbanOrganic complex …it’ll be some such jabber. Especially watch for UrbanFoodCommunities.com and “Liveability.” And yes, I have trademarked all these buzzwords, so don’t even think about it, nasty little marketing children.
What it means is that if the bloody Chinese are too far away to make all our stuff we’ll have to remember how to do it ourselves.
Does that mean I’ll have to get mud on my Vivien Westwood?
Yes darling, I’m afraid it does.
Nukes: I’m expecting some real surprises around nuclear energy. I remember talking to Kjell Aleklett in 2003 about the nuclear renaissance. This is one of those issues that gets normally polite ecology people at each other’s throats. Whether or not nuclear energy has an EROEI to make it worth building is one thing, but the politics will be interesting. The current British Government is talking about going from 19% to 40% electricity from nukes in 20 years. I stand in awe of the nuclear energy PR machine that has completely turned the government’s opinion round from 2003 to 2006. Now watch for the demonstrations.
Immigration is going to hit the big time: 2010 will be a tipping point in the collapse of Africa and the mass migration into Europe. For the last 4 decades, more or less since the independence of the last colonies, there’s been a tragic failure of Africa to adapt. As William Easterly puts it, “Spending $2.3 trillion (measured in today’s dollars) in aid over the past five decades has left the most aid-intensive regions, like Africa, wallowing in continued stagnation; it’s fair to say this approach has not been a great success.” A mixture of tribal identity, corruption, over population, infrastructure and ecological collapse combined with increasingly severe climate effects have initiated the collapse of sub Saharan Africa. The collapse seems to be propagating rapidly out of the Horn, and accelerating. The Africans are doing what populations always do in the face of collapse. They die or leave. In this case the death toll will make the term “Biblical” obsolete, by an order of magnitude.
It’s the leaving that’s the problem for Europe. The population of sub Saharan Africa and Europe are roughly the same; something over 800 million. Europe is already far past carrying capacity, probably by a factor of two, like Britain. The transport and agricultural infrastructure, health systems, education systems and societies of Europe cannot successfully cope with such an influx and remain viable.
I’m not suggesting for a moment that Africa is the sole source of illegal migration into Europe. If only. But Africa seems to me to be in the worst shape. Add in the populations of failing countries in the Middle East, Eastern Europe and the Indian subcontinent from which migrants will flood into Europe and the total is well over a 1.5 billion.
The cracks are beginning to show. In Italy last month there was a riot in Rosarno in which illegal immigrants from set fire to cars and shops. Italy’s demographic is changing very rapidly. At least 7% of the population, not counting illegal immigrants is now non-Italian. 1 in 6 babies is born to a non-Italian. Italians are about to wake up to the permanent changes in their country. I expect some desperate headlines as we head into summer. Naturally the cry of ‘racism’ will be the sure sign of backlash.
In 1997, the number of foreigners living in Spain was 500,000. In 2008 it was 5.3 million. That is an order of magnitude difference. In Catalonia 15% of the population is foreign born. The Spanish are now beginning to realize the full effects of such high levels of immigration on its school system.
In Greece, which is already close to financial meltdown, has a non-Greek population of 10%. Until recently most of that influx came from Balkan states, but as Africa’s situation deteriorates more of the illegal immigrants will come from Africa. Aside from street riots in Greece over the economy, expect a backlash over immigration.
The cultural, religious and ethnic divides in the new Europe have been ignored by a generation of politicians. There is even a rumour in Britain that the Labour party secretly decided to allow unlimited immigration to Britain during its tenure since they thought immigrants would be more likely to vote Labour in future. For the past decade it’s been almost impossible to talk about immigration without being silenced by cries of racism. I’d expect this debate to get a lot more difficult in 2010. For better or worse, Europe is now a fundamentally different place demographically than it was 10 years ago. How it fares in the 21st century with this starting population is anyone’s guess, but if history is any guide balkanization is a lot more likely than peaceful integration. I wish there was something vaguely humorous about this whole thing, but I can’t see it.
Fighting in the street: Whole areas of Britain, Europe and the US have fallen into decay. Along with it communities have been destroyed, and we are left with a vast underclass living on benefits. Add to that the tensions in the middle classes as the last of the savings dribble away. People can generally last about 3 years if they’ve got some savings, but now it’s down to the dregs. Living on the kid’s education money and worrying about losing the house. The last shops in the high street boarded up. No room at university for the kids anyway – and nowhere for them to go. 50% unemployment in the under 25s. The austerity measures announced from the balcony of some grand old palace by some unelected Brussels apparatchik with a bad comb over. The human mind can only stand so much. It’s impossible to predict the spark, but if it’s an el Nino hot summer, look for trouble in the streets.
Weather: I know that economists are the only profession with a worse record than weather forecasters, nonetheless I’m going to chance my arm. The la Nina conditions of the last couple of years have given way to a new el Nino. If it persists into summer 2010, as looks likely, we may be getting some exciting weather. As I said above, if it results in a very hot summer look out. Angry unemployed people and 40°c are a bad combination.
War: Rule number 1. Do not under any circumstances allow yourself to be drawn into an endless campaign in Asia. You are not that rich. No empire ever was, nor ever will be. You are thinking in years. They are thinking in centuries. From Babylon, with love, Alex@Macedon.
Anyone got a film crew they’re not using, I’ve got the oil film script re-done. Now I’m going to cross an ocean under sail for the first time. Wish me luck.
Requiem for a Dream
It was a very peculiar experience these last few days to live without a computer. The old mac’s transformer popped and she died, sudden as a heart attack. None of the gradual dementia of malware decaying OS, just goodnight. Naturally there followed the reincarnation ritual of data transfer to the gleaming new imac. And the new printer because the perfectly serviceable HP isn’t supported by OSX 10.6. When is the computer industry going to get off its disposable styrofoam cup version of tech? But it doesn’t matter really. Because by the time I got it all sorted Europe was having a nervous breakdown.
Old Europa is crumbling. That EU lobbyist, self-congratulatory ‘end of history’ marketing speak never could quite paper over the cracks of language and ancient wars. They wanted it to be a rerun of American history, but the history of Europe is a different beast. Free trade? Sure, I like olive oil and German cars as much as anyone. But a puzzle palace in Brussels making laws for all, accountable to none? Not really.
There is something splendid about the fact that it’s Greece where the end began. Go tell the Spartans, stranger passing by, that here obedient to the laws of finance we lie. That’s what we need: 300 sweaty men in leather jock straps to hold the bond market at bay. Will the Germans really be willing, or able, to support 11 million Greeks? So who will take care of the Portuguese, the Spanish, the Italians, the Irish…the British? Because that’s a lot of people and a lot of money. How the euro zone survives this without default is anyone’s guess, but I’d expect people in the streets before too long.
What no one seems willing to bring up is the possibility that growth may not be possible while oil is near $80/barrel. According to the Independent on the 11th of February, soon we’ll be looking back at $80 with nostalgia. All that’s left to do is watch as the people who’ve grown used to cheap money and oil learn to live with expensive money and oil.
Suppose it’s not about the bankers wondering how to get out before the roof caves in. Suppose it’s about the fact that the EU happened to be one of those ideas that came to be popular during the era of cheap oil, and now it’s obsolete because it belongs to a resource environment that no longer exists. I’m sure that some sort of smoke and mirrors deal will be figured out to keep it going for a while. But in the event of a major oil spike it will simply be impossible to find all the money needed to bail out 5, 6 countries. Who will be buying all this new sovereign debt: China? And this is just at the moment when all the headlines were trying to buck everyone up on the idea we were headed out of recovery because all the subprime mortgage lending in the US had been handled. Do you believe that the problems in Greece and Portugal were the direct result of mortgage dealers misbehaving in Cleveland?
Meanwhile I’ve been wondering about the numbers on the “recovery.” It seems as if more than half of the supposed growth over the last quarter is inventory rebuilding, which is normal, but the next part that has to happen is that the new inventory has to be bought. But consumer spending isn’t improving, it’s declining. So the businesses that are buying inventory will adjust to new lower levels of consumption. People are busy paying down debt and looking for work. If people in Europe and the US aren’t buying then China isn’t selling. China’s manufacturing miracle was based on transport being cheap. Now it isn’t, and it’s unlikely that it will ever be again. It looks as if the price of fuel will reverse 3 decades of trade liberalization. In the absence of a new technology boom, and with unemployment staying high and growing, and governments still trying to borrow their way out of a debt crisis it looks like a fake recovery to me.
What’s happening is that the service economy which has been the central mythology of the cheap oil era in Europe and the US is done. But like all our favorite myths, it takes a while to wake up to the truth. There is simply not enough productive capacity left in Europe to support the population at current standards without cheap oil and gas. The income from Tourism and coffee bars just isn’t going to crack it.
In the new local world Europe has to figure out how to get its hands on energy. Because the good folk of Venezuela, Saudi Arabia and Russia are using their own oil and gas at unprecedented rates. At a time when the bank vaults of Europe are full of bad paper we need a massive and immediate wartime level energy infrastructure mobilization. An intelligent HVDC Europe wide grid for a start, with inputs from all over, including French nukes. It’s the only way that the Europeans are going to keep things running.
It’s an unfortunate fact of human history that this kind of paradigmatic change seldom, if ever, comes without blood in the streets.
There is a chance we can make a break with history here. We’re at a critical juncture. We cannot afford to allow ourselves the luxury of civil war and social breakdown because our model of global capitalism is obsolete. One of the things we’ve done in our race to build this Utopia is use up or waste a good portion of the world’s rare resources. Sir David King, who knows a thing or two about this business, is trying to get people to understand that we are going to be running short of Helium, Platinum, Copper, Tin, Neodymium, and a host of rare earth metals, before mid century. Contrary to the economist’s idea of substitution, there are some things that we can’t substitute for. It reminds me of that Fred Hoyle quote from 1964:
“It has often been said that, if the human species fails to make a go of it here on the Earth, some other species will take over the running. In the sense of developing intelligence this is not correct. We have or soon will have, exhausted the necessary physical prerequisites so far as this planet is concerned. With coal gone, oil gone, high-grade metallic ores gone, no species however competent can make the long climb from primitive conditions to high-level technology.
This is a one-shot affair. If we fail, this planetary system fails so far as intelligence is concerned. The same will be true of other planetary systems. On each of them there will be one chance, and one chance only.”
What a shame it would be if it turned out we had blown our one chance at developing intelligence for this entire solar system because we were too busy swanning around in luxury cars right before the lights went out.
Welcome to the Real World, Mr.B
Well smack me down with a wet fish. Richard Branson has discovered Peak Oil. Where the hell you been boy? Way too much time on those Caribbean beaches. Maybe if some of us with some political clout could have dragged ourselves out of our swimmies long enough to do a bit of reading we might have had about a decade more to do some planning. Welcome to the real world Mr.B.
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