Diesel Underpins Global Economy – 'EROEI' Explained – Great Depression II in view – System Failure - Letter from Great Britain [05-28-22]

My book "The Financial Jigsaw” has now been accepted and published at my academic network.  Scroll down and Hit:  ‘View Full Text’ button for the complete book:  https://www.researchgate.net/publication/358117070_THE_FINANCIAL_JIGSAW_-_PART_1_-_4th_Edition_2020   I will be pleased to email a free PDF on request to: peter@underco.co.uk.

HONEST QUOTE: "As Johnson’s then Principal Private Secretary, Lee Cain, put it at the time, “we seem to have got away with it."

THOUGHT FOR THE WEEK:  I keep asking a question that is never raised by the MSM – I wonder why: "If the partying insiders had family, vulnerable friends and frail elderly relatives at risk of Covid and exhibited no fear the rest of us were suffering, what did they know that Joe Public didn't?

Yes, there were some telling details in Sue Gray's report – the wine stains, the puke, the brawling, the dodging out of sight of CCTV cameras at 4am, the altered invitations – all of which suggested that everyone knew they were acting against the law. At least this journalist asks the same question: "… they were avoiding being caught out on the fact they did not view Covid as a threat." https://www.bournbrookmag - report-shows-no10-didnt-see-covid-as-a-risk

BREAKING NEWS:  PartyGate ends with the final report but the repercussions are yet to be revealed: "Sue Gray’s final report, published on Wednesday, set out details of 15 events where officials variously spilled red wine on the walls of No 10, vomited, got into a fight, used a karaoke machine, and continued festivities until 4am while the country was ferociously locked down" https://www.theguardian.com/politics/2022/may/25/boris-johnson-maintains-work-events-defence

DIESEL IS OUR ECONOMIC LIFEBLOOD and there is no replacement on the horizon.  In fact we are stuck with it for the foreseeable future. It is therefore worth understanding how deeply it is ingrained in our impossibly complex and interdependent 21st century global economic system.  Without it we revert to pre-industrial societies, around the 18th century, when horsepower and human labour were the main sources of work and coal, peat and charcoal were used for heating and metal bashing. As the WEF delegates this week debate the disaster-in-making the following observations shine a light on their deliberations.

A human being has about 45 working years. This computes to around 4 barrels of oil equivalent which, at today's price, equates to a value of $440 for a lifetime of human labour!  This sobering estimate brings into sharp focus how and why our modern world works so well to deliver a lifestyle beyond the measure that a king would experience just two centuries ago. We inwardly know that this situation is unsustainable and our ruling elites know it all too well which is why they are attempting to cause a dramatic crisis in many different ways.

The Globalists are using every device to preserve their own lifestyle at the expense of the masses as we transition to a world devoid of the energy provided by cheap hydrocarbons. They visualise islands of exclusive opulence serviced by a rump of human slaves following the culling of the global populations much in the image of past empires like the Roman Empire.

And they can do it because they own all the factors of production including the premium oil reserves over which the masses have no control.  This is no speculation – their plans are published everywhere although disguised as 'beneficial' initiatives they are discussing at Davos this week.  Their mantra: "You will own nothing and be happy" is front and centre as well as "Build Back Better" implying a need following a collapse. So I ask: "How do they know it's all going to collapse?" A look in detail at the nature of diesel tells all.

The hydrocarbon fuel industry powers life, produces critical material goods, and ensures the very survival of the human species. Without the brilliant scientists, engineers, technicians, and field workers who keep these essential products flowing, society would collapse within months.  Principal in its importance among these fuels is diesel, one of the most abundant products derived from refining a barrel of oil (second to gasoline). Diesel engines are ideal for long-haul truckers and heavy-equipment operators because they provide superior torque at low RPM, critical for pulling heavy loads. Diesel engines are efficient, reliable, and durable. Without the fuel to power these engines, our supply chains would quickly seize up, grocery store shelves would be stripped bare, mining of all critical ores would cease, and riots would soon follow.

While global oil demand hasn’t yet reached its pre-pandemic level, global diesel consumption surged to a fresh all-time high in the fourth quarter of 2021. The boom reflects the Covid-19 recovery, with transportation demand spiking.  Refineries have struggled to match this revival in demand. One key reason is the soaring price of natural gas. Refineries use gas to produce hydrogen, which they use to remove sulphur from diesel. The spike in gas prices in late 2021 made that process prohibitively expensive, cutting diesel output, just like fertilizer and domestic consumption.

In considering a way forward, we have to understand the interconnected nature of these essential chemical processes, the effects on supply chains, and the complexities of our integrated economies. From the earth to the end user oil and gas are acted upon in many and various ways; transformed, refined, transported, and processed by hundreds of highly specialized companies, using capital heavy, low margin, and unpredictable business models. There are drillers, oil field services, pipeline operators, mass transport companies, refiners, distributors, and retailers.

It costs a majority of the $110 for a barrel of oil before it ever gets to the end user.  This is without factoring in the high costs of finding new, economical sources to replace the wells as they deplete and the new equipment, such as off-shore rigs and associated infrastructure.  Oilprice.com describes the situation well:

"Record-high diesel and gasoline prices are threatening economic growth, adding further upward pressure on U.S.[and global] inflation figures. As diesel prices impact every part of the economy, the fight against inflation becomes more complicated for the Fed, as steeper interest rate hikes could lead to the deterioration of economic activity and household spending and, ultimately, recession.

"When we look at the tight market, the natural conclusion is to say that a recession sorts this," Mark Williams, Wood Mackenzie's research director for short-term refining and oil product markets, said, commenting on the diesel market imbalance.  Right now, a recession may be the only short-term "fix" for the very tight fuel markets, but it's surely the least welcome cure for high gasoline and diesel prices."  https://oilprice.com/Energy/Energy-General/High-Gasoline-And-Diesel-Prices-Are-Here-To-Stay.html    Perhaps you can begin to see what Dr Tim Morgan means by 'Energy Returned on Energy Invested' (EROEI) which I describe below and further explained in my book noted above.

THE PERFECT STORM HAS ARRIVED:  Dr Tim Morgan explains how it all works: "With economies stumbling, the cost of living rising at rates not seen in forty years, and world markets gripped by nervousness, there are two ways in which we can try to make sense of current economic turbulence.

We can, if we wish, see all of this as temporary – caused by the lasting effects of the pandemic, latterly compounded by the war in Ukraine – and assure ourselves that the ‘normality’ of continuous economic “growth” will return once these crises are behind us. The alternative is to face facts.

Ultimately, the economy is an energy system, not a financial one, because literally nothing that has any economic value whatsoever can be supplied without the use of energy. The vast and complex economy as we know it today was built on energy from coal, oil and natural gas, in a process whose origins can be traced to 1776, when James Watt completed the first really efficient engine for the conversion of heat into work.

Whenever energy is accessed for our use, some of that energy is always consumed in the access process. For much of the time since 1776, this 'Energy Cost of Energy' (ECoE) declined, driven downwards by economies of scale, technological progress and a worldwide search for lowest-cost energy resources.

Latterly, though, the positive impetus of scale and geographic reach has faded out, leaving depletion – the process of using lowest-cost resources first, and leaving costlier alternatives for later – to push fossil fuel ECoEs back upwards. Technical innovation continues, but it should never be forgotten, even in an age obsessed with technology, that the scope for technological progress is limited by the laws of physics." Read this shortened version: https://surplusenergyeconomics.wordpress.com/2022/05/21/229-in-the-eye-of-the-perfect-storm-2/

BUT DON'T TAKE OUR WORD FOR IT. Professor Sid Smith is a mathematician and offers an excellent talk lasting just one hour explaining everything about our energy systems combining an optimistic outcome which appears to have captured this student's appreciation when he commented:  "The opening 80% of this speech is the sort of stuff I learn at university right now as a student of sustainability. As the facts pile up, it's become increasingly hard for me to stay optimistic. What my courses have been missing is the closing part of this speech - how to embrace collapse without being defeatist, how to be optimistic without being delusional. This is revelatory stuff, for me. I think those closing thoughts represent a really important idea that I hope gets further traction."

SO WHERE IS THIS LEADING TO?  Our global systems are highly complex, fragile and interconnected especially the supply chains which rely on diesel to function among other things. They are administered and financed by global corporations with their exclusive systems of markets for capital, labour and commodities all of which depend on continual expansion to remain in business. We have now entered a 'no-growth' global economy which will likely go negative as the Great Depression II arrives on the scene – which means contraction and failure of the global systems.

Charles Hugh Smith has a real grasp on these factors and has been writing about them for many years. His words cannot be denied: "The problem is there are many constituencies defending complexity and none favouring slash-and-burn reductions of complexity. As a result, complexity is defended and the core functions of the institution are sacrificed instead. I've posted the charts below reflecting the extraordinary expansion of administrators in higher education and healthcare in the context of the Ratchet Effect and bureaucratic bloat.

The Ratchet Effect is: costs and complexity only increase, they never decrease because organizations are optimized to expand, not shrink, and so there are no institutionalized pathways to reducing complexity and costs.  Everybody clamors for a larger budget and another assistant. Nobody clamors for a radically reduced budget and staff.  This raises a question few seem to ask: what happens when complexity unravels?

Why will complexity unravel? The answer is simple: it costs too much, and supply-side and labor costs are rising. Something's gotta give, and that something will be complexity. Complexity serves us well when it radically increases productivity. But this type of complexity is rare. Most complexity is self-serving waste and friction that reduces the productivity of labor and capital.  Labor has been suppressed for 45 years, and now labor costs must rise so workers can afford the higher cost of living.

Costs will rise inexorably for another reason: supply chains have been optimized for a perfect world of endless expansion. Barry Lynn, executive director of the Open Markets Institute, summarized the dynamic nicely: "Corporations have built the most efficient system of production the world has ever seen, perfectly calibrated to a world in which nothing bad ever happens." Recalibrating every corporate supply chain for all the bad things that are happening will cost a fortune."

These costs will be passed on to consumers, but as the purchasing power of wages declines, there will be limits on how much consumers will be able to pay.  These higher costs will depress profits which will depress employment and tax revenues.

Corporations have two pathways: one is to cling to the old model and go bankrupt (or decay to irrelevance) or radically reduce costs by reducing unproductive complexity.  Corporations have been able to borrow vast sums to mask their insolvency but now that the cost of credit is soaring, that door to zombie-corporate-Nirvana has closed.

Stripped of the option of cheap borrowing, corporations will have to adapt or perish. Yes, it really will be that simple. Enterprises that burn through their capital run out of money and vanish.

Public organizations have long been optimized to increase their revenues and complexity because an expanding economy also expands tax revenues. Nothing boosts local tax revenues like a real estate bubble, and nothing boosts state income taxes like a speculative bubble in stocks, cryptocurrencies, etc.

But all bubbles pop, and public agencies are incapable of reducing their budgets, staff and complexity, because one politically influential constituency or another favors every program. So there's no way to trim anything without igniting a political firestorm as whatever sacred-cow program that gets trimmed arouses the constituency committed to preserving that sacred-cow." Read on: http://charleshughsmith.blogspot.com/2022/05/what-happens-when-complexity-unravels.html

COLLAPSE MONITOR:  As the World Economic Forum closed this week we find that even the Elites are nervous about the future with an edgy and uncertain conclusion. They really don't have any answers to recession risks, the unwinding of globalisation, geopolitical tensions and the Ukraine war which has led to the deeply sombre mood in spite of efforts to promote the NWO and the fraud that is ESG..

The nuclear escalation risk is not being mentioned. I can't think of a time during the cold war when America openly announced its policy to eliminate the capacity of Russia to function.  Russia and Ukraine at war was unthinkable at the start of 2022 and we now know that it is actually a proxy war between two nuclear armed states.  Should we think the 'unthinkable' and prepare accordingly?

THE NARRATIVE BATTLE:  C J Hopkins has some good news in this continuing war as the Monkeypox scam arrives: "A little good news, finally! According to the professional fact-checkers at Reuters, it turns out “there is no evidence at all that the World Economic Forum’s annual meeting [which is taking place in Davos right now] was scheduled to coincide with these outbreaks of monkeypox,” and anyone who says there is, or implies there is, or who deviates from or questions the “facts,” or the “Science,” or whatever, is a “monkeypox-denying, conspiracy-theorizing, anti-vax, Putin-loving disinformationist,” and so everything is actually hunky-dory, or it will be as soon as we teach those evil Rooskies a little thermonuclear lesson!  I don’t know about you, but that’s a load off my mind. For a moment there, I thought we were in trouble."

Monkeypoxmania

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