Engineering in an Age of Limits

Discusses the role of engineers as society enters an Age of Limits — particularly with oil supplies.

Category Archives: Finance

18. Solving the Wrong Problem

Engineering in an Age of Limits

Post #18. Solving the Wrong Problem

Phytomass

Engineers did not invent the steam engine — the steam engine invented them.
What will a post-oil society invent?

This is the eighteenth post in the series “Engineering in an Age of Limits”. We are facing limits in natural resources, particularly oil; our finances (money seems to be increasingly disconnected from actual goods and services); and the environment as we continue to dump waste products into the air, the sea and on to land.

We are also facing a transition as the Oil Age comes to an end. This is not the first time that society has faced such a shift. At the beginning of the 18th century the principal source of energy in northern Europe was wood. However the forests were mostly depleted so a new source of energy, coal, had to be developed and exploited. The extraction of coal from underground mines posed new technical challenges particularly with regard to removing the water that flooded those mines. So new technologies, particularly the steam engine, had to be developed. Necessity was indeed the mother of invention. These technological developments led to many changes in society, including the creation of the profession of engineering. The transitions that we are currently experiencing as we look for alternatives to oil are likely to generate equally profound paradigm shifts.

In this blog we consider two questions:

  1. What new paradigms, new ways of looking at the world, will develop, analogous to the development of engineering in the early 18th century; and
  2. How can engineers and other technical professionals help navigate the troubled waters that we are entering?

These posts are published at our Welcome page. We also have a LinkedIn forum that you are welcome to join. 

Trickle Down Phytomass

If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions. 

Albert Einstein

Just when you thought that things could not get any worse they get worse.

Most ‘Age of Limits’ discussions revolve around the use of fossil fuels: the coal, oil and gas that was formed from the remains of photosynthetic plants hundreds of millions of years ago. We are both using them up (resource depletion) and also turning them into waste products such as CO2 in the atmosphere and acid in the oceans that are killing the environment. These problems are bad enough, but it turns out that the real concern is to do with the the earth’s inventory of living plant and animal material because that is what nourishes us, either directly or indirectly.

The technical term for this living material is phytomass.

Phytomass is critical to the survival of human beings because all of the food that we eat comes from living organisms. The energy stored in fossil fuels can help us extract and use that food more effectively but it does not create food. A person cannot eat a lump of coal or drink a barrel of oil. Phytomass is also vital because it maintains biodiversity and biochemical recycling.

In her latest essay at Our Finite World Gail Tverberg references the paper Human domination of the biosphere: Rapid discharge of earth-space battery foretells the future of humankind (lead author John R. Schramski). Published in June 2015 the paper compares the earth to a battery that has been trickle-charged for hundreds of millions of years by energy from the sun. The energy has been stored as biomass, some that is living now (mostly as trees) but most of which is stored underground in the form of oil, gas and coal. The authors argue that humanity is rapidly and irreversibly discharging that battery. They compare the earth to a house whose only electrical power comes from a battery. While the battery is charged all is well. But once it is discharged it is no longer possible to live in the house, except in the most rudimentary way.

The paper states, “Living things use photo-synthesis to convert diffuse but reliable sunlight into energy-rich organic compounds, and they use respiration to break down these compounds, release stored energy and do the biological work of living . . . humans also use technological innovations to burn organic chemicals and use this extrametabolic energy to do the additional work of fueling complex socioeconomic activities.” In other words, over a time span of hundreds of millions of years the earth’s battery has been trickle charged by sunlight being converted by plants into biomass. We are now using up that biomass and running down the battery.

With regard to the energy stored in fossil fuels there is nothing new in the above statements — the depletion of these resources is a central element of the Age of Limits thesis. However, what is new to most of us is that it is the energy stored in living biomass that really matters to our survival. After all, humans lived in rough equilibrium with the planet for tends of thousands of years. It was only with the start of the industrial revolution 300 years ago that the balance was thrown badly off kilter.

The paper estimates that the total energy stored in the earth’s current inventory of phytomass is 19 ZJ (zetajoules) and that 2 ZJ of new phytomass is created each year by plants from sunlight. (A zetajoule equals 1021 joules and is roughly half the amount of energy used by humanity per year.) “An input of 2 ZJ/y of photosynthesis maintains a standing stock of 19 ZJ of stored biomass.” In other words, if humanity were to consume phytomass at a rate of 2 ZJ per annum then we would be in balance with nature. But, needless to say, we are not so sensible.

In fact, in addition to irreversibly using fossil fuel resources, humans are also depleting the earth’s store of phytomass. The authors estimate that its value 2,000 years ago was around 35 ZJ but that now, as already noted, it is down to 19 ZJ. Causes for this depletion include deforestation, over-fishing and paving over vegetated landscapes. And the rate at which we are depleting the phytomass is increasing due to population growth and increased use of energy and phytomass per head of population. The authors of the paper calculate that humanity is consuming something like 0.53 ZJ/y more than is being replaced by the trickle down energy from the sun. This number is likely to increase as the population grows and as people strive for a higher material standard of living.

The Wrong Problem

To put it plainly, it looks as if we have been trying to solve the wrong problem. 

Our fundamental challenge is not the conservation of fossil fuel resources, nor is it reducing our impact on the environment. Our fundamental problem is that we are depleting the earth’s inventory of phytomass. Resource and environmental problems are secondary.

The chart shown below is from the journal Nature. The red line shows that startling growth in total energy consumption that has occurred in the last 300 years.

Total Energy Consumption

Based on information such as that shown in the chart the authors of the paper calculate that humanity has round 1,029 years left before the earth’s store of phytomass is exhausted. This sounds bad enough, but it is overly optimistic for the following reasons.

  1. No all phytomass can be consumed — a large proportion of it consists of trees, and we cannot eat wood.
  2. Although we cannot directly consume the energy in fossil fuel (we cannot eat lumps of coal) we still need that energy to extract phytomass energy through activities such as the manufacture of synthetic fertilizers. And, as we have discussed many, many times fossil fuel energy is declining.
  3. Human actions such as the reduction of biodiversity and pollution of the seas and atmosphere will reduce the rate at which phytomass is created.
  4. The earth’s human population (the blue line in the chart) continues to grow, at least in the short and medium term.

Therefore the value of 1,029 years before the store of phytomass is gone is probably wildly optimistic given the trends. Therefore the red line, the total energy consumed by humanity, will grow with it.

The unspoken assumption in most Age of Limits discussions is that if we can somehow control our use of fossil fuels then all will be well and we will be able to maintain our current lifestyle, or something close to it. Based on the insights of this paper such a conclusion is hopelessly naïve. Moreover, non-biological sources of energy such as wind, tidal power or nuclear energy are all essentially immaterial to the central problem — which is that we need phytomass to live; all that these  other energy sources can do is help us create and extract phytomass more effectively, thus ironically bringing about our demise even more quickly.

End Point

Schramski and his colleagues are saying that it is not enough to achieve a balance with our resources and environment — the current balance is unsustainable. We must cut back both the total population and we must drastically reduce our per capita consumption of phytomass. Simply stopping growth is not enough — we need to drastically shrink our presence on this earth because, “Unless phytomass stores stabilize, human civilization is unsustainable”. 

The authors go on to say,  “Living biomass is the energy capital that runs the biosphere and supports the human population and economy. There is an urgent need not only to halt the depletion of this biological capital, but to move as rapidly as possible toward an approximate equilibrium between [photosynthesis] and respiration. There is simply no reserve tank of biomass for plant Earth. The laws of thermodynamics have no mercy. Equilibrium is inhospitable, sterile, and final . . . the laws of thermodynamics offer little room for negotiation.”

I started this post by noting that I ran across the Schrmaski paper at the Finite World site. One of the commenters there, Fast Eddy, showed the following picture and said, “If that paper is correct… this is the future”.

Dead Plant Earth

l’Optimise

Voltaire

Voltaire

The above sub-title comes from Voltaire’s book Candide, a work that I have referred to in previous posts. His satirical writing can be seen as a work of optimism in spite of all the bad things that take place. Therefore, where possible, I will end these posts with a few words of optimism.

Rhino-1

After reading and thinking about the paper Human domination of the biosphere I can think of little to be optimistic about. We will have to drastically cut back on our energy consumption and on our depletion of phytomass. We need to reduce our energy consumption so that it is no more than what trickles down to us from the sun and is then converted to living plant and animal material. But, based on what we see around us, it would appear that the chances of us doing so voluntarily are slim indeed.

This line of thought takes us inexorably back to Voltaire’s Il faut cultiver notre jardin. Live simply, grow your own food and hope for the best. But there is one other conclusion that can be drawn from the above line of reasoning. Maintaining the world’s vegetative cover and diversity of plant and animal life is not just something we ought to do — it is something that is vital to our existence.

Books

Our books, published by Elsevier, include the following titles.

Books from Sutton Technical Books

12. If wishes were horses . . .

Engineering in an Age of Limits

Post #12. If wishes were horses . . .

Electric Car Factory

Electric Car Factory

Engineers did not invent the steam engine — the steam engine invented them.
What will a post-oil society invent?

This is the twelfth post in the series “Engineering in an Age of Limits”. We are facing limits in natural resources, particularly oil; our finances (money seems to be increasingly disconnected from actual goods and services); and the environment as we continue to dump waste products into the air, the sea and on to land.

We are also facing a transition as the Oil Age comes to an end. This is not the first time that society has faced such a shift. At the beginning of the 18th century the principal source of energy in northern Europe was wood. However the forests were mostly depleted so a new source of energy, coal, had to be developed and exploited. The extraction of coal from underground mines posed new technical challenges particularly with regard to removing the water that flooded those mines. So new technologies, particularly the steam engine, had to be developed. Necessity was indeed the mother of invention. These technological developments led to many changes in society, including the creation of the profession of engineering. The transitions that we are currently experiencing as we look for alternatives to oil are likely to generate equally profound paradigm shifts.

In this blog we consider two questions:

  1. What new paradigms, new ways of looking at the world, will develop, analogous to the development of engineering in the early 18th century; and
  2. How can engineers and other technical professionals help navigate the troubled waters that we are entering?

These posts are published at our Welcome page. We also have a LinkedIn forum that you are welcome to join. For a complete list of posts to do with the Age of Limits please visit our . Thank you.

The Engineering Contribution

One of the themes of this set of posts is to identify the skills that engineers and technical professionals possess and that can help us navigate the wrenching changes that are coming up. One of these skills is to challenge casual and ill-thought out statements and predictions as to what the future might hold. I will use predictions to do with the electric car as an example.

Adoption Rate for New Technologies (Financial Times)

Adoption Rate for New Technologies (Financial Times)

The following headline from the June 10th 2015 edition of CleanTechnica caught my attention.

Electric Vehicles To Become Mainstream In Short Period Of Time

The article’s logic is as follows.

  • Over the course of the last hundred years many new inventions have become mainstream. “Technologies we used to live without including PCs, the Internet, and cell phones have become an integral part of daily life”.
  • Once a new invention catches on “the rise to mainstream requirement is meteoric”. It takes about 15 years for an invention such as the radio to become part of normal life.
  • Electric cars will become attractive once a “200-mile-per-charge car costs less than $25,000 and when a 60 kilowatt-hour battery costs $9,000.

The article reveals some assumptions that really need to be thought through.

  1. There is a belief that because we want something it will therefore happen. Yet, in spite of the huge effort that has gone into battery development (capacity and speed of recharging), the technology for the 200-mile-per-charge car is still on the margin.
  2. Electric Vehicles (EVs) are justified because they are “good for the environment”. Yet, as shown by an article in the Journal of Industrial Ecology, this assumption can be challenged. The article states, The manufacture of the batteries and other components of Electric Vehicles EVs exhibit the potential for significant increases in human toxicity, freshwater eco-toxicity, freshwater eutrophication, and metal depletion impacts, largely emanating from the vehicle supply chain.
  3. The same article uses the phrase ‘problem-shifting’. In this case, the environmental problem is changed but not removed because EVs are not actually “zero emissions” vehicles. They may not have a tail pipe, but the power plant that generates the electricity that they use most certainly has. So the reduction in carbon dioxide generated will be much less than anticipated, particularly if the electricity is provided by coal-fired power stations.
  4. One of the justifications for EVs is that they get around the problem of depleting oil supplies (‘Peak Oil’). But their batteries use large amounts of lithium — were we to convert to EVs we could run into issues to do with “Peak Lithium”.
  5. All the other inventions that the CleanTechnica article talks about, such as dishwashers, microwaves and radio use energy in different ways. None of them produce energy.

But maybe the biggest challenge posed by switching from gasoline to electricity is the issue of scale-up — a topic that most engineers understand very well.

The Reality

References provided by Wikipedia state that, “As of 2010 there were more than one billion motor vehicles in use in the world excluding off-road vehicles and heavy construction equipment”. There are also many thousands of airplanes, military vehicles, railroad locomotives and ships. They all use refined fuels of one kind or another (gasoline, diesel, aviation fuel, Bunker C, and so on). Altogether we can estimate that there are currently around 1.2 billion vehicles and other forms of transport that use fossil fuels for their motive power.

For the purposes of this analysis we will concentrate on personal automobiles for two reasons. First, they are the only  electrically-powered vehicles that are actually being used. Electric trucks, airplanes and ships are merely at the experimental stage — if that. Second, the number of automobiles is much greater than other forms of transport so it make sense to concentrate on converting them. We will further assume that there are about one billion automobiles being used throughout the world and each has a life of around ten years. We will further assume that these vehicles have a life of 10 years before being scrapped. (This estimate aligns quite well with the 2014 world-wide production of cars and commercial vehicles.) Therefore if a concerted effort is to be made to have an all-electric fleet of automobiles then approximately 100 million such vehicles are needed every year, in order to complete the transition within ten years.

So, how are we doing? Well, the  number of electric cars sold world wide in the year 2014 was just over 300,000, which is about 0.3% of the overall production. In other words electric cars have yet to any meaningful impact. Hence the massive, concerted effort to wean ourselves off gasoline to power our cars has yet to start. But making such a conversion would take a phenomenal effort and investment to make it happen. Not only would we have to build the factories to manufacture the vehicles themselves and the electric motors and batteries that go in them, but we would need a huge new network of “filling stations” and maintenance facilities. There would also be a need to dispose of much of the infrastructure used to manufacture and deliver gasoline and other oil products. in an environmentally responsible manner.

So what are the road blocks (ahem) to such a project? Well, here are at least four.

  1. It would require a dedicated commitment by pretty much all the nations and manufacturing organizations in the world. There are no indications at all that such a commitment is in the works. Indeed, because a project such as this would challenge the livelihood of many existing businesses it is likely that it would face many challenges.
  2. The project would require an enormous financial investment. Debt levels, which are already very high, would have to be vastly increased in order to fund this project.
  3. The project would also require a very high investment of existing energy sources, particularly oil. Yet that energy will be needed just to keep existing systems running. We can’t both have our cake and eat it. 
  4. Above all, the project would take time — a lot of time. It’s hard to imagine that the factories and infrastructure could be brought up to speed (100 million vehicles per year) in less than ten years. So the total time needed to electrify the world’s automobile fleet would be at least twenty years.

Time Available

So, do we have twenty years to execute this huge project?

Ever since M. King Hubbert published his seminal paper in the year 1956 (A Journey Part 2 — Hubbert) there has been much discussion as to when society will reach ‘Peak Oil’, i.e., that point in time when the world’s production of oil heads into long-term decline. We will explore this question in later posts. Suffice to say that it appears as if the the world hit ‘Plateau Oil’ around the year 2005 and it has been about flat since then. When the curve will start to head inexorably downwards none of us know for sure. A conservative estimate would be somewhere in the range 2020-2025. In other words, just a few years from now. Therefore the transition to electrically-powered transportation should have started at least ten years ago. It didn’t.

The Hirsch Report

Robert Hirsch

Robert Hirsch

What I have written in this post is hardly original. In the year 2005 Dr. Robert Hirsch, Roger Bezdek and Robert Wendling published Peaking of World Oil Production: Impacts, Mitigation, & Risk Management. The following statements are from the Executive Summary. My comments are in italics.

When world oil peaking will occur is not known with certainty. A fundamental problem in predicting oil peaking is the poor quality of and possible political biases in world oil reserves data. Some experts believe peaking may occur soon. This study indicates that “soon” is within 20 years.
Based on the discussion in the previous section the rough estimate of 2025 suggested in the report seems to be quite sensible.

The problems associated with world oil production peaking will not be temporary, and past “energy crisis” experience will provide relatively little guidance. The challenge of oil peaking deserves immediate, serious attention, if risks are to be fully understood and mitigation begun on a timely basis.
The past energy crises that the report refers to were primarily political. Peak oil is a geological phenomenon. Therefore this observation continues to hold true. The report did not receive “immediate, serious attention”. 

Oil peaking will create a severe liquid fuels problem for the transportation sector, not an “energy crisis” in the usual sense that term has been used.
The report makes the important distinction between energy in general and the liquid fuels needed to run the world’s transport fleets.

Peaking will result in dramatically higher oil prices, which will cause protracted economic hardship in the United States and the world. However, the problems are not insoluble. Timely, aggressive mitigation initiatives addressing both the supply and the demand sides of the issue will be required.
This forecast is only partially correct. The price of oil continues to oscillate. Oil is absolutely fundamental to our economies. If its price rises to too high a level economic activity slows down so the demand for oil falls, along with its price.

Mitigation will require a minimum of a decade of intense, expensive effort, because the scale of liquid fuels mitigation is inherently extremely large.
There has not been a decade of intense effort to address the issues presented in this report. Nor does it appear as if such an ‘intense effort’ is about to start.

Conclusions

It is possible that electric cars will make quicker inroads than they have so far (maybe in China in response to their air pollution) but the possibility of converting most of the world’s automobile fleet within a generation seems to be highly unlikely.

We can draw the following broader conclusions from this discussion.

  • The fact that we want something to happen does not mean that it will happen. “If wishes were horses, beggars would ride”.
  • Even if a new technology is feasible the issue of scale-up can create near-insurmountable problems to do with finance, political will and new Age of Limits constraints.
  • Engineers can play an important role in helping us understand these difficulties.

One of my goals in writing this series of posts is to show how we can address the problems/predicaments that we face. Indeed, it may even be possible to identify business opportunities. There are any number of web sites and books that describe our difficulties. But many of them conclude with the word ‘should’, as in ‘Society should make a massive investment in electric car technology’. Such statements achieve little — most people and organizations are going to do what they want to do, not what they should do.

The conclusions I come to in this post are:

  • Automobiles powered by fossil fuels (gasoline/diesel) will decline in number over the next twenty years due to increasingly stringent climate change regulations and due to declining oil supplies.
  • The development of a similar-sized fleet of electrically-powered cars in that time frame is not feasible.
  • Therefore we will move into a world where personal mobility is much more restricted and/or there will be much greater use of public transport.

Books

Our books, published by Elsevier, include the following titles.

Books from Sutton Technical Books

10. Denying Blackbeard – Part 1

Engineering in an Age of Limits
Post #10. Denying Blackbeard – Part 1

Rex Tillerson CEO of ExxonMobil

Rex Tillerson – CEO ExxonMobil

Engineers did not invent the steam engine — the steam engine invented them.
What will a post-oil society invent?

This is the tenth post in the series “Engineering in an Age of Limits”. We are facing limits in natural resources, particularly oil; our finances (money seems to be increasingly disconnected from actual goods and services); and the environment as we continue to dump waste products into the air, the sea and on to land.

We are also facing a transition as the Oil Age comes to an end. This is not the first time that society has faced such a shift. At the beginning of the 18th century the principal source of energy in northern Europe was wood. However the forests were mostly depleted so a new source of energy, coal, had to be developed and exploited. The extraction of coal from underground mines posed new technical challenges particularly with regard to removing the water that flooded those mines. So new technologies, particularly the steam engine, had to be developed. Necessity was indeed the mother of invention. These technological developments led to many changes in society, including the creation of the profession of engineering. The transitions that we are currently experiencing as we look for alternatives to oil are likely to generate equally profound paradigm shifts.

In this blog we consider two questions:

  1. What new paradigms, new ways of looking at the world, will develop, analogous to the development of engineering in the early 18th century? and
  2. How can engineers and other technical professionals help navigate the troubled waters that we are entering?

These posts are published at our blog site. We also have a LinkedIn forum that you are welcome to join.

Previous Posts

The posts in this series so far are:

  1. Reverse Engineering
  2. Peak Forests
  3. The Mechanical World View
  4. Four Strands
  5. A Journey Part 1 — Twilight
  6. A Journey Part 2— Hubbert
  7. A Journey Part 3 — A Predicament
  8. A Journey Part 4 — Inconvenient Truths
  9. A Journey Part 5 — Bankable Projects
  10. Denying Blackbeard Part 1 (this one)

We have also, during the course of the last two years, published other posts to do with these topics. They are listed at our Welcome page.

Introduction

Engineers tend to view the world in terms of objective facts and calculations. They are comfortable with the view of the world outlined in The Mechanical World View. But, as discussed in Four Strands, the reality of the world that we live in is that most people react to discussions such as those posted here with emotion — usually a negative emotion such as denial, fear or anger.

Denial is not just an individual trait — it is a reaction sometimes exhibited by large organizations. To illustrate this point I would like to think through some of the comments made in a recent speech by Rex Tillerson, CEO of ExxonMobil, and hence one of the most powerful and influential individuals in the oil business. Before doing so I need to point out that, as a process safety and process risk professional (see my site at Sutton Technical Books), I have worked as a consultant and team member with many of the world’s largest oil companies, including ExxonMobil. These companies have a total commitment to safety, with results to match. And ExxonMobil is a safety leader. I will illustrate this leadership, specifically involving Mr. Tillerson, in the next post when we discuss the Blackbeard (non) incident.

Given this commitment to safety, and given that these companies have a very good grasp of the concept of risk, it is a puzzle that they seem to be in such denial regarding global warming and other elements of the Age of Limits. After all, could they come to grips with the changes that are occurring they may be able to identify business opportunities that will take them into the next decades.

The Speech

The following statement is extracted from Mr. Tillerson’s speech. It is quoted in the May 27th edition of Bloomberg Business — a respected business journal. Mr. Tillerson said,

Climate models that seek to predict the outcome of rising temperatures “just aren’t that good,” Tillerson said, reiterating a position he has publicly advocated at least since his promotion to CEO in 2006. The company is wary of making efforts to reduce emissions that may not work or that will be deemed unnecessary if the modeling is flawed, Tillerson said.

“Mankind has this enormous capacity to deal with adversity. Those solutions will present themselves as the realities become clear,” he said. “I know that is a very unsatisfying answer for a lot of people, but it’s an answer that a scientist and an engineer would give you.’’

Let us unpack the above statement to see how such a large and important company is managing denial.

Climate Models

Mr. Tillerson states that the models just “aren’t that good” — a phrase that really should be quantified. Yet the very selfsame article cites another Bloomberg piece that contains the following quotation,

There is widespread scientific consensus that human activity is causing climate change . . . 

The reality is that the models are good — scientific uncertainty will always exist. But if there is one group of people that are used to making decisions on limited and conflicting data it is oil company executives. Whenever they decide to drill a well; there is always a chance that they will hit a dry hole. In fact it is likely that the climate models are a good deal more accurate than many of the models that oil industry uses in its business. Moreover, having worked in process risk management for companies such as these I know how well they handle risk and ucertainty in other business areas — these are the waters in which they swim.

Dealing with Adversity

Intriguingly, the comment that “solutions will present themselves” aligns with one of the major tenets of this blog. In the year 1712 Thomas Newcomen invented his steam engine because the people of that time, just like ourselves now, were faced with a dilemma. Their dilemma was to find a replacement for the forests that had declined; our dilemma is to find a new way of living given that we are bumping into resource, environmental and financial limits.

But the solutions did not really “present themselves” in the manner that Mr. Tillerson would seem to indicate. They were identified and developed by motivated individuals who realized that, in the words of the Monte Python, And Now for Something Completely Different. Newcomen and his successors recognized that brand new solutions were needed — the old models were not working. In modern parlance they introduced “disruptive technology”.  Mr. Tillerson’s comment could be interpreted to mean, “solutions with present themselves to ExxonMobil”. This is a risky assumption.

Science and Engineering

In his statement, Mr. Tillerson appears to conflate science with engineering. But they are not the same. Scientists are not expected to “deal with adversity”, or with anything else for that matter. Their responsibility in this context is to develop models to do with resource depletion and climate change that accurately reflect the observed data and then to make sensible and defensible predictions. Engineers, on the other hand, are expected to take those models and develop technology that can address the problem at hand.

In fact the development of new technology is really a three-step process. The first step, as discussed in Peak Forests, is to develop an intellectual framework (in their day this was done by men such as Francis Bacon, René Descartes and Isaac Newton who created the ‘Mechanical World View’). The next step is to develop technology — in their case the steam engine. The third and final step is the development of explanatory science (such as a theory which explained why Newcomen’s engine could never lift water more than 32 feet).

We, in our day, seem to be still at the first step. Many writers, most of them on the Internet, are critiquing the way we run things now to the point where is all becomes rather repetitive and tedious. I am more interested in trying to figure out what I will call an Entropic World View that replaces the Mechanical World View might look like.

A Kodak Moment

Kodak-1

History books are littered with stories of companies that failed to adjust to new circumstances and eventually went out of business. Kodak is a well-known example — its failure to react quickly and thoroughly to digital technology led to its rather sudden demise.

In its early days the company the company had been innovative and, maybe more important, willing to sacrifice a currently profitable product line for a new technology. For example,

  • In 1900 they introduced the Box Brownie camera — “You push the button, we do the rest”.
  • Twice George Eastman bet the company on change — once when he moved out of plate photography to rolls of film, and later when he moved to color, even though the initial quality was not that great.
  • In 1975 a company employee invented the first digital camera. That’s when things started to go wrong. Rather than bet the company once again, management played a defensive strategy and eventually lost the game, going out of business in 2012.

Various business journals have analyzed the reasons for Kodak’s failure to adapt. They tend to boil down to just a few precepts.

  • Top management never fully understood how the world around them was changing.
  • Even when they did respond they did so half-heartedly, always trying to enhance the existing film business with digital rather than starting a brand new business.
  • They were not willing to dump the ecosystem of Kodak dealers that was central to their old business model.
  • Above all, management was never willing to gamble the company on new technology in the way that George Eastman had done.

It is useful to use the Kodak story as an analogy for what the oil companies are facing now, and there certainly are some parallels. There is, however, one big difference. Kodak was faced with a clear and present disruptive technology: digital photography. The oil companies are faced with a situation where there is no single technology to replace what they are doing now. Instead, they are looking at a situation where the old business model is starting to crack but there is no new technology waiting in the wings.

Blackbeard

Blackbeard

Blackbeard

My comments so far could be construed, with some justification, as being critical of ExxonMobil’s response to climate change — and by implication, most of the other large oil companies. There is nothing in Rex Tillerson’s speech to show that he is looking to transform ExxonMobil in the manner that George Eastman did on at least two occasions with Kodak. However, as already noted, oil company culture is probably more risk-oriented than that of other industries. Also, over the last twenty years or so, their culture has developed a profound understanding of safety management — and the results show it. This indicates to me that these companies have demonstrated a willingness not only to change culture, but to do so effectively. They have also placed the safety ethic above the profit ethic. All of which augurs some hope for the future.

More on this in the next post when we discuss the Blackbeard (non) incident.

9. A Journey Part 5 – No Bankable Projects

Engineering in an Age of Limits
Post #9. A Journey Part 5 – No Bankable Projects

Bankable Projects

Engineers did not invent the steam engine — the steam engine invented them.
What will a post-oil society invent?

This is the ninth post in the series “Engineering in an Age of Limits”. We are facing limits in natural resources, particularly oil; there are limits to our finances (money seems to be increasingly disconnected from actual goods and services); and there are limits to how much we can continue dumping waste products into the air, the sea and on to land.

We are also facing a transition as the Oil Age comes to an end. This is not the first time that society has faced such a transition. At the beginning of the 18th century the principal source of energy in northern Europe was wood. However the forests were mostly depleted so a new source of energy, coal, had to be developed and exploited. The extraction of coal from underground mines posed new technical challenges particularly with regard to removing the water that flooded those mines. So new technologies, particularly the steam engine, had to be developed. Necessity was indeed the mother of invention. These technological developments led to many changes in society, including the creation of the profession of engineering. The transitions that we are currently experiencing as we look for alternatives to oil are likely to generate equally profound paradigm shifts. How this will impact the engineering profession remains to be seen.

These posts are published at our blog site. We also have a LinkedIn forum that you are welcome to join.

Previous Posts

The posts in this series so far along with those planned for the near future are:

  1. Reverse Engineering
  2. Peak Forests
  3. The Mechanical World View
  4. Four Strands
  5. A Journey Part 1 — Twilight
  6. A Journey Part 2— Hubbert
  7. A Journey Part 3 — A Predicament
  8. A Journey Part 4 — Inconvenient Truths
  9. A Journey Part 5 — No Bankable Projects (this one)

We have also, during the course of the last two years, published other posts to do with these topics. They are listed at our Welcome page.

Introduction

This is the final post in the series to do with my personal journey into understanding the Age of Limits. We have already looked at resources and the environment — the third topic is money. It is also the most difficult to write about. Resources such as oil are moderately simple to measure and understand. And, to an engineer concepts such as the Hubbert Curve and Energy Returned on Energy Invested are not hard to grasp. Environmental issues are more complex but they also are physical phenomena that can be analyzed technically. But money is much more nebulous because it is a token for physical goods — it has no inherent value.

With regard to resources I have mentioned that a small number of people (Simmons and Hubbert in particular) provided me with a foundational understanding. With regard to environmental issues, particularly global warming, I have mainly soaked up information from many sources. I have already referenced Al Gore’s An Unpleasant Truth (in not an entirely complimentary vein). Other writers could be cited — sufficient to say that there is no shortage information about how we are wrecking the environment.

Which brings us to money. For understanding the role of money in the Age of Limits I have already referred to three writers in A Journey Part 3 — A Predicament. They are:

  1. Richard Heinberg and his book The End of Growth: Adapting the Our New Economic Reality, published in the year 2011;
  2. Gail Tverberg’s blog  Our Finite World (where she pays particular attention to the role of debt); and
  3. Chris Martenson’s Crash Course.

A few thoughts on financial topics are presented here — we will explore them in more detail in later posts. All I am trying to do for now is to describe my personal journey into understanding the Age of Limits and what it means for engineers. But, at the heart of this discussion, is a recognition that economic issues are not stand alone — they are connected to the world of physical resources. So, for example, adding money to the world’s economic systems in the hope that doing so will generate growth is foolhardy once one understands that there are insufficient resources to back up that stimulus, and even if we could jump start the economy in this manner we would simply add to our limits with regard to the environment.

ERoEI

At the heart of our economic predicament lies the inexorably declining value of Energy Returned on Energy Invested for oil and other critical energy resources. This is a concept I have discussed in Nine Pounds of Gold, and, because of its importance to all Age of Limits discussions, it will keep cropping up in future posts.

ERoEI simpy means that it takes ever-increasing amounts of money simply to find and extract oil from the ground then we would expect the price of oil to steadily increase. And that is what has been happening. The chart below shows the inflation-adjusted price of oil for the last twenty years. If we use a starting value $20 in the year 1970 and draw a straight line through the points to the year 2015 we see that the current price should be around $80. This gives an exponential growth in price of about 3% per annum over a 45 year period. (There is a good deal of scatter in the data — mostly due to short-term political events. But there is a clear trend of steadily increasing prices.)

Crude Oil Price

Crude Oil Price

This annual increase of around 3% is, in effect, a non-productive tax. It is the amount we pay to the oil producers to find, extract and refine the oil that is so necessary to our society. And it is incremental — every year the “tax” increases another 3%. And, given that we have already depleted the low-cost oil and gas fields, this tax will continue to increase. The goods and services that are used to produce the new oil are not available for other projects or activities. They are used, in ever increasing quantities, just to maintain the status quo ante.

Oil Production Rates

The world’s production of crude oil probably reached a peak around the year 2005. However, it is difficult to know exactly when that event occurred for the following reasons.

  • On a year to year basis production rates do not change all that much, which is why I prefer not to use the term ‘Peak Oil’. It would be better to say ‘Peak Plateau’.
  • There are many factors such as political and economic issues that can cause large fluctuations in the short term.
  • The term ‘Crude Oil’ can mean different things to different people. In particular, it is important to know whether a person is including Natural Gas Liquids and Condensate as being part of the crude oil supply.

Given all these caveats, it appears as if the world’s production of conventional crude oil reached a plateau of around 75 million barrels per day in the year 2005 and has remained at that value since. In the last few years that number has been significantly supplemented by tight oil production from North America. However that source is already declining because the wells have a short life and lower prices make tight oil uneconomic.

Demand in the United States has fallen but in China and India it has gone up — so these two factors appear to have cancelled one another out and we are in rough equilibrium.

Projections for the next twenty years show a steep decline in production rates, as shown in the chart below.

Projected world liquid fuel supply

The chart shows the production of conventional oil falling from 80 to 30 million barrels per day by the year 2030. Most of the gap is made up by production from ‘Unidentified Projects’, which, by definition, are unidentified. Even if those projects can be identified it will take many years to bring them up to speed but the chart shows that we do not have many years. Moreover, charts such as this make no mention of ERoEI — they make no mention as to how conventional oil will have to be diverted to provide the energy needed to develop and implement these Unidentified Projects.

Deflation / Inflation

I grew up at a time when inflation rates were high — and high inflation is something I never want to see again. When I first looked into the topic of Peak Oil I assumed that the price of oil would go up; this would be followed by general price increase and high inflation rates. However, at the  the blog The Automatic Earth the authors Ilargi and Stoneleigh (Nicole Foss) make the argument that deflation is our biggest challenge. They make an argument on the following lines.

  • Reduced supplies and increased prices for oil and other commodities reduces demand.
  • The economy contracts — in particular, people lose their jobs.
  • This reduces spending power and so prices fall.
  • In such an environment cash is king and debt is to be avoided at all costs because jobs and other sources of income will dry up but debt payments will still have to be made.
Nicole Foss Automatic Earth

Nicole Foss

In October 2009 Stoneleigh (Nicole Foss) made the following forecast.

. . . I would say that the energy prices that currently seem stubbornly high should fall substantially as the speculative premium evaporates and demand falls on a resumption of the credit crunch. 

The result should be a reversal of a number of trends that depend on the ebb and flow of liquidity – we should see stock markets and commodity prices fall, a significant resurgence in the US dollar and a large contraction of credit. The scale of the reversal should be substantial, as should its effects on energy demand. Demand is not what one wants, but what one is ready, willing and able to pay for, and in a severe credit crunch the capacity to pay for supplies of most things will be severely reduced.

As demand falls, and with it prices, investment in the energy sector is likely to dry up. Many projects will be uneconomic at much lower prices, meaning that the projects which might have cushioned the downslope of Hubbert’s curve (and the much steeper net energy curve), are unlikely to be developed. In this way a demand collapse sets the stage for a supply collapse that could place a hard ceiling on any prospect of economic recovery. That is a recipe for extremely high energy prices in the future.

Apart from continued high stock prices her words are prescient. The recent drop in in oil prices was caused by short-term political issues. But behind the fall lies a reduction in demand as the economy contracts — or at least, fails to expand.

But — and there’s always a ‘but’ — many forecasters lose credibility when they make predictions of extreme events occurring in the near future. For example, in 40 ways to lose your future, Foss states,

Ordinary people are unlikely to be able to afford oil products AT ALL within 5 years.

Those words were written in June 2009 — more than five years ago — and our local freeway seems to be as congested as ever.

Bankable Projects

Herman Daly

Herman Daly

The above discussion points to the inexorable conclusion that economic growth is coming to an end thus taking us to the title of this post  — the lack of “bankable projects”, a term introduced by Herman Daly of the Center for the Advancement of the Steady State Economy. He points out that, in spite of the availability of financial capital, few projects now generate an annual return of 10%, thus doubling in value every seven years or so. He says,

Where did all this excess financial capital come from? Not from savings (China excepted), but from new money and easy credit generated by our fractional reserve banking system, amplified by increased leverage in the purchase of stocks. In other words, capital is not created from savings or from returns on successful projects. And the reason for this is that we are depleting our natural resources.

And the reason that real growth cannot be achieved is that we no longer have the natural resources needed to sustain that growth.

 . . . growth in yesterday’s empty-world economy was reasonable — in today’s full-world economy it is not.

In other words, few high return projects are available because we have entered and Age of Limits.

Conclusion

This post concludes my very brief overview of my personal journey into understanding the Age of Limits, how it will affect engineering and how engineers can help some of the wrenching changes that are about to occur. We will continue writing posts at this blog on a weekly basis, at time permits.