The AGW chickens are coming home to roost
A global energy shortage has resulted which will crimp economic growth for decades
“If you think oil prices are high today, wait until Net Zero”, says the Financial Post in a special article written by Bjorn Lomberg . He is dead right.
The theory of Anthropogenic Global Warming (AGW) is now headline news across the globe with leaders of almost every Western democracy claiming “climate change” is an “existential threat”. Leave aside the obvious facts that AGW violates the laws of physics and atmospheric CO2 concentrations cannot possibly lead to the calamity climate alarmists claim even if those concentrations double from current levels. Applying laws of physics and chemistry and arithmetic, I published an article that demonstrates indisputably that AGW (even if the theory held water, which it does not) would result in a de minimus rise in global temperatures even with CO2 levels doubling.
Importantly, for those who prefer to pray at the Church of AGW, complete combustion of all known oil reserves on Earth could only add 140 ppm to atmospheric CO2 levels, not enough to materially increase global temperatures on anyone’s theory of AGW.1 This is not controversial since the amount of CO2 created by complete combustion of oil is an inescapable outcome of the laws of chemistry and the world’s existing oil reserves are measured and reported by the U.S. Energy Information Administration (EIA) and International Energy Agency (IEA) regularly. The calculation requires no more than grade school arithmetic.
What the widespread belief in AGW has done is massive harm to energy development. Capital has fled from energy projects and major oil producers have elected to use excess cash flows to fund higher dividends and stock buybacks rather than engineer a supply response to higher prices. Higher energy prices are resulting in lower production growth. This vicious cycle benefits energy investors materially but contributes to even higher oil & gas prices as the shortages of production meet demand growth that is outpacing supply.
Demand for oil & gas is inelastic and grows with the economy despite trillions being squandered on costly and unreliable “renewables” like wind and solar. Wind, solar and other renewables growth in electricity production through 2020 has had little effect on the growing production of electricity from all other fuels. The EIA continues to project higher electricity output from renewables through 2050, but not enough to stop the growth of power output from non-renewable fuels like oil & gas. Like it or lump it, demand for fossil fuels will continue to grow not only for electricity production but also for petrochemicals, aviation fuel, home heating, industrial furnaces, etc. Oil & gas use for transportation may be somewhat mitigated by a shift to electric vehicles (EV’s) but the lower demand for oil will be to some extent offset by the resulting higher demand for electric power generation.
Headlines are now recognizing the “clean energy” era has led to a growing world energy crisis, likely the first of many to come.
The looming energy crisis is now in its early innings. World oil storage has been reduced by about 600 million barrels in the past year to offset the gap between oil production and oil consumption. Industry giants are no longer expanding production based on higher prices, but are diversifying away from oil, paying higher dividends and buying back stock. The IEA sees a supply shortage and price spike as likely. The American Petroleum Institute sees the shortage coming as early as next year.
An energy shortage portends even higher fossil fuel prices and even higher inflation rates. Central banks keep pretending that inflation is either “transitory” or will be mild and presenting the view that it can be controlled with only modest rises in interest rates. That has never been the history of high inflation which in the 1980’s needed interest rates in the 20% range to have any effect, and the factors underlying today’s inflation trends are more powerful in that they are imbedded in AGW policies in which governments are so committed to they will be loathe to reverse. U.S. energy czar John Kerry goes so far as to dismiss the violence as the Ukraine and express it does not distract leaders from the threat of climate change. Voltaire once wrote “Those who can make you believe absurdities, can make you commit atrocities.” That seems relevant today as a descriptor of our left wing governments, in particular the Biden administration in America and the Trudeau regime at home.
Most citizens of Western democracies will be adversely affected by the economic malaise our leaders have created and continue to exacerbate with inane policies based on AGW fears. Relief from rising inflation will come only from a deep recession and very high interest rates as the self-inflicted energy shortage drives inflation higher, much like it did in the energy crisis of the early 1970’s. The inevitable economic collapse will lower demand for fossil fuels but not likely enough to generate an energy surplus since the natural decline rate of oil & gas production (about 20% per year) needs at least $500 billion annual capital investment to sustain output (at a capital efficiency of $25,000 per barrel of oil per day) and a 5% decline in real economic growth worldwide has the potential to reduce fossil fuel demand by less than 5%.
McKinsey & Company, Inc. (my one time employer) sees fossil fuel demand continuing to grow until 2030 before beginning to decline by less than 1% per year until 2050. While demand may abate in another 8 years as McKinsey projects, supply may fall even faster and prices more likely than not will keep rising.
Citizens of countries who have committed to “renewables” will suffer slower growth and higher inflation, consdered by many to be a “tax on the poor”. One class of citizens will benefit - those with the courage and wisdom to buy stocks in oil & gas producers. That includes me.
Combustion of 1 barrel oil yields 433 Kg of CO2. The Earth’s atmosphere has a mass of 5.146e18Kg. There are abour 1.7 trillion barrels of oil reserves on Earth. Complete combustion of all the existing oil reserves would yield CO2 equivalent to 140 ppm of Atmosphere. Do the arithmetic yourself.