Thursday, 12 June 2014
Keeping Up Is Hard
There were two articles in parallel yesterday both bearing on the questions of Energy and the economies of the world. They both demand concentrated reading. The first is from Finite World that points out some of the issues involved. The second is from Energy Matters on China.
It could be difficult to try to keep up and more so to expand the investment needed to maintain energy supplies to meet population growth and continuing economic expansion.
What the IEA has inadvertently stumbled upon is the reason why oil limits are a problem, and in fact, the reason why energy limits in general are a problem. It looks like there are plenty of resources available and plenty of ways to reduce energy use through mitigation. In fact, it becomes to impossible to finance everything that needs to be done.
An energy-providing device, or an energy-saving mitigation, requires up front payment. This payment reflects the fact that oil and other scarce resources (high priced metals, for example) need to be used in creating these devices. Oil and other scarce resources need to be used in developing new oil, gas and coal fields and power plants as well.
This puts pressure on both debt markets and on scarce resources. At some point, the use of scarce resources becomes too great, and debt needs become too high. The projects with high up-front costs are among the worst contributors.
The plan to keep adding more and more debt doesn’t work. The economy is growing too slowly. People’s salaries are not rising to match the higher costs involved. The locations where the debt is needed are not in the part of the world with adequate banking services.
It is the inability to finance all of the investment that is needed that will bring the system down. Resource scarcity will be behind the scenes, playing a role as well, but its problems will be hidden behind the problems of financing the needed energy investments.
The second full article in parallel is an intricate read about the situation in China as it is developing and is not good news. It ends as follows:
Economic growth in China has been in lock step with coal production of roughly 10% per annum. I have for a long time been expecting coal production to lag economic growth and that this lag may subsequently become a drag.
The switch to coal imports is the first sign of this happening and when Chinese energy imports once again hit global energy prices this will create a drag on the global economy and China.
The effects will be worse and more damaging in some places rather than others. Take your pick.