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Politics : Rat's Nest - Chronicles of Collapse -- Ignore unavailable to you. Want to Upgrade?

To: Wharf Rat who wrote (12367)	7/1/2011 10:12:29 AM
From: Wharf Rat	Read Replies (1) \| Respond to of 24232

Feeling Peaky? Posted on June 30, 2011 by Seb Beloe Earlier this month, we had Tony Greenham of The New Economics Foundation visit Henderson to talk about “peak oil” and the implications for future economic growth. Over 40 fund managers from across Henderson’s equities and bond teams turned up to hear what Tony had to say, demonstrating that investors from a wide range of perspectives recognise that this is an important issue to consider. The term “Peak Oil” refers to the point at which we reach the peak in global extraction of oil. When an individual oil field peaks the flow rate declines fairly rapidly thereafter, and so too does the rate of production from an oil province; US oil production peaked in the mid 1970’s and UK production in about 2000. Since the 1950s, when M K Hubbard correctly predicted the peak in US production, scientists have tried to model and predict the peak in world oil production. This is complex modelling for many reasons, and there is disagreement on the answer, but there is a substantial and growing body of opinion that expects oil production to peak either imminently or at least within the next 10 years. In 2010 the UK Industry Taskforce on Peak Oil and Energy Security (backed by major companies including Scottish and Southern Energy and Stagecoach Group) found that “oil shortages, insecurity of supply and price volatility will destabilise economic, political and social activity potentially by 2015.” The International Energy Agency stated in their 2010 World Energy Outlook that conventional production peaked as long ago as 2006. Beyond conventional oil there are of course other sources of energy such as deep water oil and gas, tar sands, shale gas, nuclear, wind and more, but this is the point at which Tony introduced us to the concept of EROEI, or Energy Return on Energy Invested. In the 1930’s the oil and gas industry had an EROEI of 50, meaning it was generating 50 times as much energy as was used in extraction and refining. By the 1970s this ratio had fallen to 30x, even for conventional oils. Other energy sources are not nearly as easily accessible, so the net energy balance falls precipitously for unconventional oil such as that found in tar sands, current deep water exploration and so on. Some of the current growing areas such as some forms of biofuels actually use more energy to produce than is returned in their use. The concept of EROEI is useful in that it demonstrates what a startlingly concentrated and cheap source of energy conventional oil is. None of the known alternatives comes close to its qualities. They access energy less efficiently, are less available and likely to be much, much more expensive to extract. Plot this declining supply picture against an outlook where energy demand growth is showing no signs of slowing, and a gap begins to open up quite quickly. The implications of all of this are somewhat open-ended. At a macro level it poses serious questions about future economic growth. Oil pervades our economic system and so the impacts will be felt in unexpected places. Industrial agriculture is based on oil not just for powering machinery, but also as the basis of fertilisers, as well as the onward transport of finished products. The impact of higher oil prices is already being felt in exposed industries. I gather from our bond team that a leading UK clothing retailer has recently had to restructure its financing, with freight costs cited as one of the causes of the deterioration in profitability. A “post peak” world is likely to be characterised not just by higher oil and energy prices, but also by more volatile prices and supply shortages. The biggest opportunity in our view, is in technologies driving energy and resource efficiency. Higher energy prices shorten the payback for investments that reduce resource use, and the threat of future volatility and supply shocks adds improved business resilience to the value of such an investment. Efficiency remains one of the most powerful of our Industry of the Future investment themes. Investing in the companies supplying these technologies is a core part of our Industries of the Future investment strategy, but companies purchasing them are also likely to be more resilient in the face of a increasingly volatile and uncertain future. mindfulmoney.co.uk