Author: John

“There has been too much violence.  Too much pain.  But I have an honorable compromise.  Just walk away.  Give me your pump, the oil, the gasoline, and the whole compound Just let me give you my crude oil and I’ll spare your lives.  Just walk away and we’ll give you a safe passageway in the wastelands.  Just walk away take the crude oil and there will be an end to the horror.” – The Road Warrior (Updated for 2020)

Did you see the new Mad Max® prequel?  It was playing on every channel last night.

Whiplash is coming.

Currently, like the rest of the economy, the energy industry is a mess.  It was just the energy industry’s turn.  First it was Gamestop®, and now it’s the industry that underpins every bit of modern society.  Our modern world is built on the premise that cheap, available energy will always be abundant.

How can we afford to have fresh lettuce and tomatoes in the middle of winter when there are none growing within a five hundred mile radius?  That depends on cheap energy to grow it, and cheap energy to transport it.  Cheap energy provides modern society the ability to use the weather of one continent to grow strawberries when it’s winter on another.  The miracle is that it allows this to be done at such a low cost that it’s affordable to nearly everyone in society to eat fresh strawberries in winter and for stoners to grow weed year round in the basement.

Energy is important, and probably the most important component of energy in our lives is crude oil.  I know that it will give Greta Thunberg the whiskey shakes, but oil is currently absolutely required to feed several billion people on this planet.  Beyond that, it provides luxuries that no king in history could have had to everyday people.  Want to see what the weather is on the other side of the planet?  Want to watch a celebrity 1500 miles (34°C) away in their 10,000 square foot (17 liter) summer home in a gated community virtue signal that #weareallinthistogether because their maid isn’t considered an “essential” employee and they’re suffering, too.

Seriously, it was in the newspaper that Greta had a cough and was certain she had COVID-19, but my diagnosis is that the symptoms were caused by an acute lack of having people write about her on a daily basis.

So, oil is important.  But the oil industry is currently collapsing.

How bad is it getting?  I filled up my tank on Monday, and was offered a complementary free oil well with my purchase.  I had to turn it down because I couldn’t afford how much money people wanted me to pay to take the oil from the well.  I’m joking, they actually offered me six oil wells.  But oil producers really had to pay to get people to take their oil last week.  This is a situation that’s unheard of in the history of, well, everything.

Economics is based on the study of scarcity of stuff, not on the overabundance of stuff.  And right now we have more crude oil than Bernie Sanders has houses.  Why?

Gasoline demand has plummeted.

This week we’re partying like it’s 1994, because that’s the last time that gasoline consumption was this low.  In 1994, the United States had a population of only 263 million, 80% of what it is today.  Remember 1994?  That was the year that Nancy Kerrigan got kneecapped by Tonya Harding’s buddy and O.J. Simpson was arrested after the Coronavirus of police chases, since the whole chase involved people you didn’t know dying and it dragged on forever, which both seem to be symptoms of COVID-19.

Hipsters had problems skating on lakes.  They wanted to do it before it was cool.

The oil market is so bad in April, 2020 that oil producers are shutting down existing wells.  Oil demand has dropped 29% in the last month, down from approximately 100 million barrels a day to only 71 million barrels a day.  71 million barrels a day is a number last seen when people were coming out of their Y2K bunkers to see if Skynet® crashed the world.  Spoiler alert:  if 2020 keeps going like it has been, I expect Y2K to actually happen sometime in June.  It’s been that rough of a year.

To me, the really stunning figure is that oil demand dropped by nearly the combined production of every single OPEC nation.  Yup.  13 nations.  Think about that when you think about the ramifications of our current situation.  The economic output of entire nations is now no longer important.  How do you eat in Venezuela?  Even when oil was profitable you couldn’t find food in Venezuela, thanks to the miracle of socialism.  One positive note about socialism – if there is a socialist hell (and if I have to go to hell), I’ll sign up for that one instead of the capitalist one.  They probably have already run out of money to pay for heat.

But the oil situation is scary.  36 crude oil super tankers are lined up in the ocean, just lurking off the coast of California, right now.  They represent 20% of the world’s daily production, and they have absolutely no place to go.  And I expect it to get much, much worse.

See, I can make fun of the metric system using Star Wars™, too.  (H/T to Arthur (LINK) for the idea.)

If demand dropped that much, what about production?

In some cases, production is ongoing because oil producers will lose leases if they shut down.  In others, the concern is that shutting a producing oil field can damage the reservoir, forever trapping some oil that could have been recovered.  In yet other cases, the producers have done the calculation that some money coming in is better than none, although when you have to pay to get rid of the oil, you can’t really make that up in volume.

Drilling will soon come to a standstill for the fracked shale oil wells that have been entirely responsible for the oil production boost seen since 2008.  One thing about fracked wells:  you have to keep drilling to get the oil.  A typical fracked oil well can decrease as much as 65%-85% in the first year, but keeps producing at a lower level for a very long time.  This produces a very simple equation:  to keep producing oil, you have to keep drilling and fracking for it.

Fracking for oil is just like the Red Queen said to Alice in Alice in Wonderland’s sequel, Through the Looking-Glass as Alice asks why they’re running and not getting anywhere:

“Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

Drilling will stop, so a lot of that 8 million barrel per day increase in US oil production since 2010 will evaporate.  Gone.  And it will take years of drilling to get back to that number.

See?  Now you can have an Irish accent, and describe our oil situation with just one phrase!

The oil demand collapse will last for years, and will be in tandem with the economy.  My bet?  At least five years, if not a decade.  A slowly moving economy doesn’t need as much fuel since you don’t have the money to drive, anyway.  And we were pretty fuel efficient in the past, after all, it only took Christopher Columbus three galleons to find the New World.

But what happens when things start to get better, people start to drive more, and economies around the world begin to try growing again?  All the drilling rigs are put up.  All the drillers are doing other things.  The companies that used to drill and frack the shale are gone.  The expertise that was won over a decade of drilling shale in Texas and the Dakotas?  Like a Kardashian’s dignity, it’ll all be gone.

That’s when we’ll face whiplash.

Just as the economies of the world start to wake up from the slumber of their economic coma, they will have to face a hard ceiling on energy production.  Oil production won’t keep pace with demand, and then the fun begins as oil prices skyrocket and strangle an economic recovery.  This will lower demand, and you have a nasty loop where the systems will cease to reinforce each other, and will instead fight each other.

I know people talk about alternative energy, but even now alternative energy plays as big a role in the world’s energy makeup as alternative rock.  Eliminate the disastrous and uneconomic use of ethanol for automotive fuel here in the United States, and alternative fuel use across the United States (including windmills) becomes minimal.

But Darth Vader® insists on using Castrol Siththetic™ Oil.

63% of the energy for electricity (in the United States) comes from fossil fuels.  Nuclear is in second place with 20%.  The only other sources worth mentioning are hydropower and wind, which each produce about 7%.  Transitioning to alternative energy is even harder than re-learning how to frack oil shale:  it will take decades and billions of dollars of sustained investment.  On top of that, alternative energy faces technical, economic, and environmental hurdles that make teaching a fashion model to read look simple.

We could try to blame this mess on COVID-19, but COVID-19 couldn’t crash a system that wasn’t already as fragile as Alec Baldwin’s ego in the first place.  The developed world’s economic, monetary, and credit systems were already broken.  COVID-19 just came along and gave them a nudge.  If it weren’t Coronavirus, it would have been something else, like too many people showing up with 30 items in the 12 items or less line at the supermarket.  Every year of the last decade has been that system living one more day on borrowed time as it danced near the edge of a cliff.

But for now:  anyone want a great deal on some crude oil wells?

“I’m gonna have me a glass of ripple.” – Sanford and Son

This was Alaska, so there were no dolphins – instead The Boy had to play Salmon Says.

I remember when The Boy, The Mrs. and I were living in Fairbanks just after Pugsley was born.  There aren’t a whole lot of things you can do with a four-year-old and a four-month-old since their sleeping schedules greatly interrupted our sleeping schedules.  As a result, we took drives around the area.  Don’t feel bad for us – Alaska was beautiful on every trip we took.  And kids often sleep in the car, though everyone seemed to complain when I did it.

On one particular trip, we went up a road due east of Fairbanks:  Chena Hot Springs Road.  Like many roads around Fairbanks, this one ends in a complete dead end.  In the lower 48, dead ends are rare – in most cases one road leads to the next like the seams in a great patchwork quilt.  Not in Alaska.  Alaska is the end of the road – and there are more dead ends than there are in the Kennedy family’s political careers.

About 20 miles from Fairbanks, we pulled over to stretch our legs.  It was early September, and we had already seen our first snow and first freeze, so the weather was cool and pleasant.  We Wilders have ice in our blood, and loved the climate of Fairbanks, which probably explains why my air conditioner is set at 64°F (-3K) and my house consumes half the electricity in my state in July.

We finally hiked through birch and pine to the river shown in the picture above, and The Boy ran up to the water and began doing what boys everywhere have been doing since boys and rocks and water were first all in the same place at the same time:  he started throwing rocks in the river, starting with small ones, and finally ending up with the biggest ones he could heave in a meaningful manner into the rushing river.  By meaningful, if a rock is too big, it doesn’t make that satisfying deep splash and “thunk” sound as the air rushes in to fill the rock-sized hole in the river.  I’m convinced that if a task seems destructive, a four-year-old will do more work in an hour than a strong man can do in four.

The Boy loved it.

Above:  Democratic budget planning session.

And tonight, when thinking about this post, I thought back to that moment.  Even though The Boy was doing a lot of work, he was just putting rocks back into the stream they came out of in the first place.  The splashes into the turbulent water would soon be so overwhelmed with the chaotic waves and currents that those splashes would be entirely lost; a signal terminated just like Joe Biden’s memories of every event since 1996.  Twenty miles away in Fairbanks, it was certain that no trace of The Boy’s effort would ever be seen.

People like to talk about the “Butterfly Effect” in a way that makes it seem like every action has a consequence, no matter how small.  That’s not true:  I leave the toilet seat up all the time.  The original “Butterfly Effect” was based on introducing a small amount of instability in a stable system and watching that instability grow, like that time I threw a garter snake into the volleyball team’s locker room.  But when you introduce a small change into most systems, like those rocks into that turbulent Alaskan stream, nothing’s changed – the signal introduced is overwhelmed by the chaotic noise.  Or towels.

But if it’s from Australia, it’s probably poisonous.  Or beer.

Our current situation is nothing like a boy throwing stones in a river, however.  Instead, it’s like an earthquake.  When earthquakes happen in the ocean, they release a tremendous amount of energy.  A 7.8 magnitude quake is similar in energy release to a 600 megaton nuclear bomb.  Since no bomb this large has ever been built, just imagine calling your girlfriend your ex-girlfriend’s name in the middle of an argument for an approximation.  To triple the explosive power, replace “girlfriend” with “wife” in the preceding sentence.  Telling her to “Calm down,” will likewise increase the explosive yield.  Please don’t ask me how I know.

When this energy is released in an earthquake associated with water, there is always the chance of a tsunami being formed – a wave radiating outward from the original earthquake that can be as high as 500’.  This wave can reach shores thousands of miles away from the original quake.  An earthquake off the coast of California on January 26, 1700 caused a 10 foot tsunami in Japan.  I’ve heard that California passed a regulation that limited tsunami height hitting their coastline to no more than two feet, and those must be on a sunny day in June and the permit must be applied for sixty days in advance, so you can bet they’re safe.  Finally an end to dangerous assault tsunamis!

Yeah.  That never works.

That’s where we are today – the global impact of what’s going on isn’t the equivalent of a boy throwing rocks in a river, instead, it’s the equivalent of a still-ongoing earthquake, with the tsunami waves yet to hit the rest of the world.

In 2008-2009, the Fed did everything they could to mash money into the system to deal with the mess of the Great Recession in the United States.  In addition to the collapse of oil prices, the result of the Great Recession and the Fed’s intervention was eventually, as it always is, inflation.  Since the dollar was the world currency and no one can buy American wheat using currency made from papyrus and hope, the result was much different in Alexandria, Egypt than in Alexandria, Virginia.  If you live in Alexandria, Virginia, if the price of bread doubles that means you still buy a loaf if you even notice that the price doubled.  Where’s the Nutella®?

If you live in Alexandria, Egypt, if the price of bread doubles, you might not eat.

AOC called me.  She told me I couldn’t have a post with the word “hunger” and the word “Alexandria” and not mention her.

Besides hunger, this situation led to yet even more unemployment in countries that barely had jobs in the first place.  The normal poverty and corruption of Egypt didn’t stop – the inflation imported from a continent away so people could flip houses just made it that much worse.  The result?  Revolution across North Africa and the Middle East, and waves of refugees attempting to make it to Europe.

That was just one ripple from 2008-2009, when the crisis was far smaller than today’s.  I fully expect conditions here in the United States to be far better off than Egypt during the whole of the crisis because our civilization didn’t peak in 4000 B.C.  To be fair to the Egyptians, it was one hell of a peak.  The pyramids will still be standing in 6,000 years when the only remnants of Western Civilization remaining will be the parts of Madonna® that nature can’t digest.

Cockroaches and Madonna© will survive the apocalypse.

However, it occurred to me today that any hardship we see in the United States will be small in comparison to the hardships that will be seen in the Third World.  Those countries will feel the true wrath of COVID-19.

Which countries?  Certainly oil producing countries.  If Venezuela can’t feed Venezuelans at $60 oil, it won’t be able to feed them at $20 oil.  I know it’s difficult to be harder on a country than communism, but Coronavirus will be the cherry on the cake of the workers’ paradise.  Along with that, I don’t expect Africa or the Middle East to do any better than they did in 2010 although in some places it won’t even be noticed because they peaked even earlier than the Egyptians.  Mesopotamia and the Fertile Crescent, I’m looking at you.

China will likely be hard hit as well.  With no one to purchase their stuff, and being a very significant net importer of both petroleum (now cheaper) and food (soon to be inflated).  I’d expect to see this drive more social repression, which China is really, really good at, having been ruled by authoritarian leaders for roughly 27,000 years.  The next five years will answer if they are the world juggernaut that they intend to be, or one that’s so dependent on the outside world that their power will evaporate away with this particular set of circumstances.  I find the idea that they will turn inward like they have done since 221 B.C. compelling.  Hey, it has worked for 2241 years, so why break a streak?

The carrier, the carrier, the carrier is on fire.  We don’t need no water . . .

I tend to think the European Union won’t make it.  The United States at least used to have a common language and, mainly, a common heritage.  The European Union is like a pizza with pepperoni, pineapple, polonium and zinc washers on it. No, I apologize.  The pizza makes more sense than the EU.

I especially think that, nation by nation, the EU is getting pretty tired of the refugee flow.  Many refugees come to Europe and other Western states not to be European, but only to be economic “citizens” that have no affinity for Western Culture.  Adam Piggot talked about this in a blog post where he described newly-minted Australians banding together in their ethnic group to raid stores to horde for the plague (LINK).  That behavior (or behaviour, if you live in a country where everything that’s not poisonous and wanting to kill you is non-poisonous and wanting to kill you) won’t exactly be a selling point for the pro-immigration promoters.

The problem with making these predictions is like the rushing current The Boy threw stones into.  The events in the entire world will be so turbulent that picking winners and losers reminds me of what Yogi Berra said:  “It’s tough to make predictions, especially about the future.”  But as this economic tsunami hits nation after nation, expect changes to come at us so constantly in the next five years that we will all be numb as Kamala Harris’ dead heart from the information flow.

I have to promise everyone – our current crisis will be no worse than a power outage that lasts 17 years.

I also think that in five years we will be a much harder people, everywhere on Earth.  What would you think if you were, say, a newly minted engineering student preparing to enter a job market where even STEM graduates who normally can find real jobs with titles that don’t end in –ista have to look for the –ista jobs?  What happens when even –ista jobs cease to exist?

Yes.  There will be hardships.  But there will also be rocks.  And rivers.  And boys.  The ripples that the world is making are beyond our control.  But the ripples you and I make?

Those might even last longer than Madonna’s™ indigestible bits.