Totally unexpected change, at least unexpectedly fast change across the global energy supply-demand space is only now beginning to produce the right analysis. The above chart that ends in 2011 can be continued with another unexpected change - both curves have broken downward. What we have today is not a lack of liquid hydrocarbon resources, or other hydrocarbon fuels, or non-hydrocarbon energy, but the inability of the Old World OECD to compete in a global economy based on using all kinds and types of what will become cheaper energy, starting with cheap coal. This was, ironically, the basis of the Old World's economic takeoff and prosperity from the late 19th century.
The old paradigm was that cheaper energy in the shape of coal fuel anabled growth and led to higher standards of living. This paradigm was routed by the 1970s oil shocks and the ecology-environment and green energy movement, now morphed into the anti-Global Warming movement. The new paradigm is a future of declining oil and energy prices to levels too low for the 20 to 30 major oil exporting nations and major energy corporations, an economic and financial problem, just as too-high oil prices were an economic and financial problem for the more-than-160 oil importer nations. The old paradigm dating from the 1970s oil shocks had massive lingering impacts across the economy and economic policy space ever since, but however if oil and energy prices in general decline - and they will decline - the financial and debt connection will spell major crisis.
At its most brutally simple, any return to the Cheap Oil era or epoch of 1985-2000, when oil cost around $15 - $20 per barrel is now completely impossible without a corporate and country debt crisis. The reasons for this start bad, and quickly become worse.
Overpriced oil is now obligatory, to prop up damaged and weakened national finances, and to finance "secondary and tertiary" oil production, always higher cost than "conventional oil". The result is brutally simple - oil has to stay expensive, and has to price itself out of the energy mix, and is doing so, shown by world energy dependence on oil falling from about 53% of all energy in 1973, to about 32% in 2013. More than a half of all energy was oil, but today less than a third is oil. Two-thirds of world energy, today, is not oil energy.
Further contraction is inevitable. Only the rate of contraction is to discuss and analyze, and immediately throws us up against debt limits - for oil corporations and oil exporting countries, bent on producing and supplying more oil, and for the now fragile "bad banks" and financial entities of the world.
The new energy-economic and financial paradigm is simple. "Overshoot and collapse" is now programmed into world energy financing and energy economics, due to energy prices necessarily falling but being thought of as "impossible" for too long.
Other ramifications of this crisis are, for certain, less stark or more subtle but are very wide ranging. Entities as apparently immune as the IMF and global central banks are examples - dependent on or accustomed to "hot money" petrodollar and petroeuro flows. Even fiscal drag in the energy intensive Western economies is another example. Drugged on high energy like the corporate sector, governments have a touching but blind faith in high-price energy.
One example, already mentioned, is the near-total dependence of the Green paradigm and Climate consciousness on high oil and energy prices. Only partly known to or accepted by the persons and entities working this now-depleting lode of public sympathy and support, either a debt collapse or an oil price collapse will not only bring down investment and interest in all fossil fuels, but will accelerate the already existing decline of investment support and new capacity in renewable energy.
Quite simply we will need less energy - so why produce more?
marketoracle
