Oil is cheap • But everyone’s still poor • And our jobs might vanish • But I’d have fun

2016 has been, so far, what I would describe as “bracing”, and I mean for that to apply on a range of scales from global on down to personal. My favorite soothsayer, John Michael Greer of the Archdruid Report, has put up his annual round of predictions for this year that awaits us. They include a couple of collapses that would open up gaping sinkholes beneath the frail global economy: the popping of the current tech bubble (did you know that Twitter, for all its ubiquity and air of invincibility, has run losses of over $100 million per quarter practically since it was founded?) and the fall of the Kingdom of Saudi Arabia (which can no longer fund its totalitarianism at these oil prices).

It’s been said that the last person who really understood the world died in about 1890, but I’ve come to think lately, while reading his voluminous writings, that Greer may just have taken up that mantle. But that’s not the only reason I have to put at least a little stock in his particular predictions among a world of prognosticators who usually turn out to be not just wrong but idiotically so. I’ve also been noticing on my own that the world seems very much to be heading in the directions he’s been pointing.

I live under a rock to some extent, so I’m not the best person to talk about what the average person’s outlook is on the state of the world and where it’s likely to be heading. It seems to me, though, that most people, in the US at least, are still cautiously optimistic that we’ll keep getting more of what we’ve been getting lately: technological innovation, scientific fixes to our various problems, and the general appearance of increasing quality of life. The caution in the cautious optimism has been getting more and more dominant since 2008, especially among millennials, who emerged from childhood into a smoldering wreck of an economy and were promised a swift return to prosperity for everyone, but are still waiting for that to come true in full. But for the time being, people by and large are willing to take it on faith for a little bit longer that incremental new iPhone models are necessary baby steps on the way to inventing the holodeck and probably eliminating world hunger, somehow.

From under my rock, though, something I do have a view of is the industrial sector of the economy, and the mood in that realm is, I think, considerably grimmer than on the street. The company I work for sells to a few different sectors of the economy: factories of various kinds, heavy equipment distributors and manufacturers, research departments, and so on. We’re good at what we do, so my boss has been trying to figure out why our phones have been quiet, and the answer, an unwelcome one, turned out to be that the entire industrial sector of the US economy has been immobile in a hospital bed for most of the past year.

The main exception, for a while, was the unconventional-oil industry, the one sector that actually appeared to be making a lot of profit. A lot of hopes and dreams got pinned on the frackers, all across the US and Canada, including our company’s, because we invented something they needed. It seemed they had tapped into a vast, nearly inexhaustible resource, and they had money to fling to everyone—the working poor willing to relocate to North Dakota or northern Alberta; the companies that would invent new machines for them to use to frack more efficiently; the entire economy, really, since North American energy independence would lead to a new era of abundance, a “Saudi America”. Five years down the line, and you can see the companies’ corpses floating in the water.

What happened is still a source of complete bewilderment or misconception to most people, so I’m going to try to clear it up based on what I’ve been reading lately. This is going to be long and go all over the world, but stick with me.

Let’s start at the beginning. Geologists have known about the principle of fracking for about two hundred years, but for most of that time it’s been more of a curiosity than anything. The gist is that a lot of the Carboniferous era’s trees and algae turned into crude oil, but a lot more turned into waxy stuff called kerogen, which can turn into oil in two situations: One, you wait a few geological eras, and the Earth’s heat and pressure do it. Two, you make it yourself, the hard and expensive way. That’s something about fracking that doesn’t get mentioned much—most people know it’s harder than sinking a well and getting a gusher, but I don’t think most people know why it’s expensive, or what the process involves. It’s expensive because it’s a fantastically inefficient way of getting oil.

First, drill a hole about a thousand feet deep. Be very careful and use the very best equipment. Now, get yourself some water. You’re going to want a lot—get yourself a farm of giant water tanks, and you’d better be near a river. Add chemicals and clay into the water until you’ve got some highly refined and specific mud, and now it’s time to start pumping: get that water down in there, and catch it when it comes back up full of kerogen-impregnated sand. Okay, that was the cheap part, especially if you were near a river. Now you have to take all that wet sand, dry it off, and then burn spectacular amounts of fuel to fire it in a hot oven until the kerogen melts off. Only then do you have crude oil, which you still have to send to a refinery before it’s any good to anyone. Also, you have a whole bunch of extremely toxic water, which you can use to give cancer to some towns nearby.

Extraction of conventional oil, the good old-fashioned liquid black gold, reached its peak in 2005 and has been clawing down the other side of the mountain ever since then. After a delay of a few years, and aided by the US’s housing bubble, the price of oil finally responded to that situation by shooting up, to a momentary high of $140 a barrel and a steadier level around $100. That made fracking suddenly just profitable enough to persuade people to go to all the trouble. So companies big and small showed the numbers to some loan officers, and got almost unconditional cash, to sink wells into the ground in a manic state all over the Bakken Shale and the Athabasca Tar Sands.

Meanwhile, though, everyone else was still reeling from the high prices. Companies’ budgets had tightened around the world, people had gotten laid off, production had been offshored to cheaper and cheaper places, companies had cut on wages by automating, and the economy got itself running pretty close to the theoretical maximum of efficiency: fewer employees, lower wages (and let’s hope nothing goes wrong). Working people, a lot of whom had either gotten laid off or had their hours slashed, got poorer and poorer and bought less and less. New working people, the millennials I was talking about earlier, realized that their normal might be different from the last generation’s, and a lot of them have declined to buy cars and suburban houses. In general, everyone started holding their purses tightly closed and very close to their chests.

And that’s why oil is so cheap now: we’ve started using less. The market theory says that should mean the producers start producing less, but it turns out that oil doesn’t work like that—once you’ve drilled a well, you let that sucker gush no matter what the price, because it’s cheaper than furloughing your wellmen, and that means that oil companies are stuck pumping as much oil as they thought we’d use, while we’re actually using a lot less, and now they’re running out of tanks to store all the extra in. Cushing, Oklahoma, is the country’s stockpile of oil, and they’re full there, with tankers idling off the coast of Texas waiting for their turn to offload.

Seems like this cheap oil should reverse all the purse-tightening, but that’s another thing that doesn’t work like you’d think. Once you’ve laid a bunch of people off and you’re still in business, you, the CEO, are kind of inclined to just keep these new profits, rather than hiring a bunch of new people or building another factory. So the poor are staying poor.

Alright, but surely that effect will fade as wells slowly go offline, and the price will go up again, and the frackers will come back? Well, they’ll try, but by then there might not be enough spare cash in the banks to fund them all (and the banks will be once bitten twice shy)—and even if there is, the frackers will run into some more trouble, because they’ve already dug all the easiest wells, and they just get harder and less profitable from here. Plus, where a conventional well might give you oil for 30 years, a fracking well is completely tapped after two, so you always have to be drilling more. At first, the fracking industry’s breakeven point might be $60 a barrel, but it will creep up and up, and meanwhile, our entire civilization, which grew up on oil at $20, will find that it can’t catch its breath. Fracking takes a lot of money, a considerable fraction of the US’s total amount of money, and as it takes more and more, there’ll be less and less available for everyone else, until no one can buy the oil anymore anyhow. And at that point, everything will change. Economies will implode, countries will fracture, factories will close, stores will vanish, and it will become clear to everyone, worldwide, that the future isn’t going to look like all the futurists told us it would.

That’s not preventable. It’s already in motion. Most people either haven’t noticed or are trying to tell themselves that they haven’t noticed. But I think, looking back, we’re going to see 2015 as the year when the last hurrah of the global economy crested and the fracking bubble popped, and 2016 will be the year when people started really noticing that something had happened.

China has already been taking the lead on ensuring that, with a cratering stock market and persistent rumors of government interference in all its figures. On a much smaller scale, it’s thrown itself under a spotlight in my own life. My company, at the beginning of last year, was looking at a very promising-looking year, because we’d figured out how to make new heavy machinery work in the cold: when the EPA put out new regulations, the engine makers just slapped on little doohickies to stop some of the gunk from going into the air, but these doohickies are very liable to getting frozen up, which makes your bulldozer’s engine either refuse to turn on or, in some cases, explode. North Dakota and Alberta are, well, cold, and all these companies were having to stop drilling on cold days, and here we were with the promise of solving that problem.

And now none of those companies are buying any of the things we invented for them, because they can barely afford to keep the wells pumping. (Something like forty unconventional oil companies have gone bankrupt since 2015 started, and counting.) It takes a lot of money to invent something, even something simple, and now we’re kind of stuck with all our money sunk into widgets that maybe no one will ever buy. And the rest of the industrial economy is in nearly as bad a shape, so we’re not selling our mainstays either. The upshot is that, at the annual company luncheon last week, we all had pizza and then got a grim, sobering picture from our boss of how difficult it might be for the company to stay afloat, and he asked most of us to start working only four days a week.

Don’t worry about me. I’m actually kind of excited. I started taking a day off per week last year just to have more free time, but then I forgot and fell out of the habit. Now I’m guaranteed to have an extra day per week, and I live so far below my means that I’m not going to be hurting for cash. At least for now, I’m doing fine. The tricky part, of course, comes if my extra day off per week turns into five. But even that, I think, wouldn’t faze me too much, and in fact, it would probably give me a much-needed kick in the pants toward doing things that have been on my long list of good intentions for almost as long as I can remember.

Financially, I have enough saved, and our rent here is so cheap, that I could live for at least year in this house off of savings and dumpster-diving. Of course, I would be looking for ways to send a little stream of income into the pot from web design or something else. I now actually have marketable skills, and it’d be nice to use those to maintain the grubstake I’ve been counting on for building supplies when (in all likelihood) Misty and I build a house.

But to look at it from another angle, if my job evaporated, I think the result for me wouldn’t be the traditional depression, it would be a de-stagnation. For the time that I’ve been at this job, I’ve spent forty hours a week doing one specific kind of work. I’ve gotten really good at it, but I’ve also been constantly aware that it’s more than likely not going to be useful very far into the future. Meanwhile, there are all these things that I want to be learning to do that would be useful as far into the future as I can imagine—everything that falls under the permaculture umbrella, basically. To boil it down, if I lost my job, what would happen would just be a realignment of what I’m trying to achieve with my time. Current alignment: make money to build a house. Projected alignment: practice how I want to live my life (and how to do it with minimal money).

The second one actually sounds a lot more fulfilling (especially if you know me), doesn’t it? So much so that you might wonder why I haven’t quit my job and dropped out of the system already. There are a few reasons, but the main one is that I know money is going to be useful for a few things, while we wait for a barter or gift economy, but I still haven’t saved up quite as much as I’d like to have to achieve those things, so I’m holding out a little longer.

Another is that I’m still transitioning from the way I’ve been taught to live, which is money-based. This transition is also the reason that Misty and I are possibly going to stay at Sprout House for another year.

At last count, I was telling people that we might drop off the grid this summer, and start living up by Lake Superior next spring. Since then, we’ve had a bit of a possible change of heart. Not that we don’t want to do that—but we think it might be good to figure out who we are in the context of living off the land first. Every homesteader has their own unique viewpoint and style. If we moved onto an existing homestead, though, with established practices, we might not develop our own—the same way that someone who’s been in relationships her entire life might suddenly realize, in a panic years down the line, that she doesn’t know who she is.

That’s why we’ve been thinking we might like to stay in Sprout House through 2017. That would give us a chance to do a lot of land-based things that the house has been very slowly gearing up for. We’d get to take part in actually raising the chickens we prepared for. I’ve been thinking about building a wood-burning cookstove out back from cob or something else that would allow for rocket stove principles. Also, a solar cooker; also, a composting toilet. Not to mention learning more about gardening. There’s so much to figure out.

As of a few days ago, that plan was fairly well set, but then Misty, Currant, and I spent the weekend at The Draw, and on the drive back home last night, Misty and Currant both found themselves catalyzed into wanting to go go go. Here’s the thing: there are a lot of places we want to visit. We’ve already been planning to go to several in a row this summer: that Colorado gathering, Crowduck, Portland, and Currant’s brother’s homestead in northern California. In the one-year plan, we’d spend a little longer at some of those places, and we’d go to several others, like the Possibility Alliance (an incredible permaculture homestead in Missouri that largely boycotts money), somewhere we could learn alternative building skills, the Boundary Waters, and perhaps even Latin America. (Those of you who thought I’d completely sated my wanderlust are going to have to reconsider. Besides, I owe Misty a trainhopping trip.)

What we’re still trying to decide is whether it’d be simplest to just do all of that in one long swath, and whether we want to leave Sprout House (and fragment it with the departure of a lot of its housemates) just when it was feeling especially like a really nice place where we could be comfortable and learn a lot from each other. We’ll be turning all these considerations around for a while. Knowing us, we might not even have a final decision until we’re actually on the road at the beginning of it, but I think we can do at least a little better than that.

In any case, we’ve had our second taste of homestead life up at The Draw; while we were there, we got past the haze of amazement at how great it is to live off the land and got plunked into the hard-work aspect of it, splitting logs and mucking out the sheep barn and hand-churning butter. Working for a day on that stuff in the deep snow made my citified muscles ache to a memorable depth, but rather than turning me off to the whole idea, it just made me look forward to a time in my life when I’d be fit enough to do this kind of stuff and barely blink. Misty and I have been starting to do more rock climbing, and we’re generally getting more physical, after allowing ourselves to become soft and slothful. This also serves as one of our next big steps on where we want to be in life.

We’re trying to make most of the stuff we do serve as one of those. Like I said in a post last year, there’s no time to lose. The continuing long collapse that’s been going on for years now is reaching critical points that will soon make it a lot more difficult to live in the old American style where you can just solve all your problems by throwing money at them. We’re entering a new era where wits and land skills are going to get a lot more important. And for our part, we’re learning all we can about how to live in that era.

File under: civilization, resources, deep thoughts


Anonymous

History

It'll take me some time to digest all that, so I'm limiting my comment to wondering why your typed 'fi' and 'fl' come out as 'i' and 'l' although fr, fu, fa, fo, fe, f(space) and Fi come out all right. I suspect typing technique – i and l are easy to type very quickly after f, while o requires the third finger on the upper level, u is less used in the language and thus perhaps less facile to type, r, a and e are also in the left hand, and Fi requires the shift key in the right hand. OR, am I all wet and there is a perfectly reasonable other explanation for this?!!!! Irene

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Anonymous

History

Consider looking into finding a job in the
solar or Wind energy companies. Their stock is skyrocketing and will continue to do so , in my opinion. I have many comments n what you have said. but I will only say, again, 'it's your life you get to decide'

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Chuck

History

Irene, fi and fl show up normally on my screen. Could you give me details of your computer and browser, or send me a screenshot that shows it? This blog's a proving ground for my web design stuff, so I'd better make sure I'm not messing something up. All your possible explanations from typing technique are going to have to put their hands down, because I typed this on the Dvorak keyboard, which is completely rearranged from traditional QWERTY. It's almost certainly something to do with typographical ligatures.

Grandpa, solar and wind energy companies have skyrocketing stocks because of lots of investment capital, subsidies, and government contracts. I'm not going to count on all those things to last. Seems from here that "the fundamentals are sound", but they were saying that about the housing market too.

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Anonymous

History

Actually, I see that the typist is not the problem because everything I typed in my comment has the same problem. Any f before an i or an l simply disappears. Third finger comes through as third inger, and having a fling reads as having a ling. It's quite amusing. It might be an incompatibility with my server or anything else. You'll know better than I. Let me know if I can help in any way.

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Chuck

History

Hm, Windows computer, Firefox… I tried the same and couldn't reproduce it. I tried messing with the magnification and that didn't turn up a problem. I'll look into this more later. If you know how to take a screenshot, could you email one to me? (If you don't, it's actually pretty simple. Hit the unpopular old PrtSc [Print Screen] button, and then open Paintbrush and hit Ctrl+V, then save it.) I think you have my email address, so I won't post it for spambots to find.

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david troxel

History

Oil demand is momentarily low, but the entire world continues to industrialize. Oil demand in the long run will remain high. The world also continues to produce an emerging middle class that has an insatiable appetite for some breathing space, which will continue to spur economic demand in all consumer products, the real engine of the burgeoning global economy.

Things seem bleak here because we still suffer from a post WWII industrial monopoly hangover and believe the life of the 1950's set a new benchmark, while in reality, it was a nirvana anomaly. We're still full of global win here, but petulant entitlement will mask the true blessings we adamantly don't see.

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Chuck

History

Right, oil demand will eventually rise back up to the level of production (or more likely the two will meet somewhere in the middle).

The middle class may be growing in some places, but each population where it's growing is offset by a population somewhere else that's getting poorer. Real wealth is currently a zero-sum game, or a very slightly positive-sum game, because we're only able to extract from nature a tiny bit more than we need to keep afloat at our current levels of consumption. And we have to count real wealth: money can be as imaginary as you want, but the middle class lifestyle is defined not by amount of money but by the consumer products you're talking about.

Those products are not the engine of the global economy, and neither is the money needed to buy them. Both of those things have to come from somewhere. The products have to come from real factories that burn real fuel. The money can come from a deluded government by way of quantitative easing, but that kind of imaginary money can't actually create real wealth, only redistribute it, whether nationwide or worldwide.

Things seem bleak here because we've been the beneficiary of a leviathan worldwide redistribution of wealth since WWII, and that time is drawing to a close. Back then we could keep expanding our piece of the pie because the pie was growing bigger and bigger all the time, so everyone else was like, "Eh, let 'em have it. They seem cool and also they have nukes, and we're still getting our chunk." Now the pie has stopped growing but everyone in the world still wants their slice to keep getting bigger, because their populations are growing and all those third-world countries were promised spuriously that first-worldliness would trickle down to them.

Our claim to the biggest slice is built on a very elaborate house of cards made of deceitful financial devices, imperial intimidation, and a façade of respectability. Those things are all reaching their expiration date.

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david troxel

History

http://www.oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html

The middle class will continue to grow globally, and shrink here. Wealth is not a zero sum game. The wealth of the world has increased substantially in the last 100 years. The standard of living for almost everyone has increased in some way. Monetary policy doesn't create or destroy it, it is just a tool. The global economy will probably collapse at some point, but it will quickly reboot with new or revamped currencies and monetary policies. Demand for durable goods, consumer goods, education, healthcare, services will always exist, and thus the global economy will thrive. There is plenty of oil to fuel it for at least another 100 years, and if the oil runs out, we will slowly adapt and survive.

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Chuck

History

Wealth wasn't a zero-sum game, and it still isn't quite, but it's getting there. And while it's true that there will likely be some oil in use for another 100 years, that oil will be getting steadily more unaffordable in real terms that whole time, because we'll be heading down the other side of the oil peak. The effect is that it'll be used in fewer and fewer places: first fewer automated factories, then fewer consumer flights, then fewer cars, until eventually only well-funded militaries can afford oil.

When you say that demand for durable and consumer goods, education, etc. will always exist and thus the global economy will thrive, though, that's a large, unsupported logical leap. I think it's much more likely that only local economies will thrive—like the ones that existed before the economy globalized, in, say, the 1500s— because in a resource-limited world, the massive infrastructure needed for global shipping and interconnectivity (containerships, cargo planes, trucking fleets, fiber-optic networks, communications satellites) will be unmaintainable.

There are a lot of different energy sources being touted as substitures for oil, but they all fall short in at least one important way, sometimes several. There's an MIT professor who undertook a long project to do the math and figure out which new energy was going to really do it for us, and he discovered, to his dismay, that none of them could really do it. Check out this sum-up of what he found, and if you want more details on any of them, that blog has them all. So we will slowly adapt and survive, yes, but it won't be adaptation to a different energy source, it'll be adaptation to less total energy.

The OECD Observer article you linked shows that the amount of oil wealth some countries have spent (not necessarily their own) has finally started paying off for some of their citizens, for now. The extrapolation they showed looks reasonable only under the assumption that world total wealth continues expanding.

Not sure how much we actually disagree here, come to think of it, but at least a little bit on the continued growth of the middle class.

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Chuck

History

I read the OECD Observer article more fully, and discovered that a good portion of it was devoted to tempering what looked like good news with a reality check: The developing countries' middle classes are still pretty poor and vulnerable. 60% of Brazil's big emerging middle class actually has no stable, steady job (they're casual workers). "This middle class is unlike that which became the engine of development in many OECD countries." Also, "While the middle class is rapidly expanding in emerging and developing countries, in rich countries it is shrinking and feels incapable of defending the standards of living that have characterised a middle-class lifestyle for centuries."

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