Looking At (Petroleum) Markets …

Dmitri Orlov has an interesting article or rather a collaboration with Ugo Bardi about what Bardi calls the ‘Seneca Cliff’. The likelihood is that the decline rate of fuel consumption (production) will be much faster than was the increase in fuel consumption. This is a re-thinking of the famous M. King Hubbert peak oil curve, you know, the curve that looks like a bell …

It is our Wile E. Coyote head first over the energy waste cliff or ‘overshoot’ moment. Doomers call this the ‘shark’s fin’, others refer to the cliff as a ‘stair-step’, presumably down. We do fine for a blissfully short period of time then we are destroyed. The economic accompaniment is credit collapse and an ecological wipeout. A the end of the day there are machine-gun battles in the streets over cans of dog food.

The bell-curve people suggest (hopefully) that the ‘downside’ of oil consumption after the peak is reached will be similar to the upside rate. Now is a good time to rush out and buy a new car: since it took a long time to get to current rates of production (rape) you will have shuffled off this mortal coil before production significantly declines. There might even be a plateau in 2035. One reason these apologists offer up is the ability of the petroleum industry to find new forms of greasy water it can call ‘crude oil’.

Here’s Orlov:


I started thinking along these lines when I was invited to speak at the annual conference of ASPO (Association for the Study of Peak Oil), which was held in Washington in October of last year. It was shaping up to be something of a victory lap for the Peak Oil movement, now that the moment when global conventional oil production reached its historical peak is well and truly behind us, while the newer unconventional sources of liquid fuels have turned out to be insufficiently abundant and too costly both to the pocketbook and the environment. I wanted to use this opportunity to try yet again to correct what I see as a major flaw in the narrative of Peak Oil: the idea of a gentle, geologically-driven decline in oil production, which seems quite unrealistic, which I had detailed in my article “Peak Oil is History” more than a year before. But I also wanted to look beyond it and sketch out some plans that would work after oil production dives off a cliff, and what it would take to get them off the ground.


Sez Bardi in reply to Orlov:


Let me see if I understand your point: you say that a Gaussian (curve) is no good; that the descent on the “other side” of the peak should be much faster than the growth. Am I right?

“If so, it is curious that I was working right on this concept today—and I think I cracked the problem just one hour ago! Maybe it was already obvious to other people, but it wasn’t to me; maybe I am not so smart but, at least I am happy now. So, I can tell you that you are right on the basis of my system dynamics model. Descent IS much faster than ascent!

“When I received your message I was just starting to prepare a post for my blog “Cassandra’s legacy” on this subject. So, if you can wait a couple of days, I am going to complete my post and publish it. Then you may give a look to it and we can discuss the matter more in depth. And I’ll make sure to cite your post, because I think it is right on target.”


Here are graphics for Ugo Bardi’s energy cliff:


Figure 1: The pinkish area is where decline rates steepen. The pollution argument doesn’t fit the scheme. The term can be used to represent (undetermined) costs overhanging depletion of fuel. The blue arrows represent feedback loops that control the level of waste or entropy within the system. As in the real world, everything is wasted with a bit of work being done here and there to entertain the children.

Figure 2: Bardi’s energy cliff is not that much different from the Net Energy or EROI cliff which has energy cost of gaining new fuel:


Figure 3: Here can be seen what happens when the energy returns on energy expenditures near zero (which is when energy returns have to stop altogether). This chart is from Kurt Cobb/Energy Bulletin and Euan Mearns. All of these are good articles to read, by the way.

One way to keep this cliff business straight is to focus on the price.

For the bulk of the oil age starting at the beginning of the 20th century, the cost of crude oil fuel in the market has been very low: $20 per barrel in constant dollars or much less. The easy fields to discover and exploit had crude deposits a few hundred or thousand feet straight down in regions close by refiners and markets. These ‘low hanging’ fields were massive, containing tens- or hundreds of billions of barrels, such as the Spindletop field in Texas and Ghawar in Saudi Arabia. The great bulk of the world’s oil used to date has been the $20 oil. Without spending hours fact-checking 90% of all the oil that has been extracted and burned up so far out of the world has been the $20 variety.

The interest of the petroleum industry has been since the beginning to keep product costs as low as possible, which meant the highest rates of production as possible. The pricing structure for petroleum products was both the invention of monopolist John D. Rockefeller in the late- 19th century and the happy consequence of improvements in oil prospecting and drilling technology, refining and transportation.

When mass-produced automobiles became available in the form of Henry Ford’s Model T there was plenty of cheap gasoline to power them. Gasoline was the ‘loss-leader’ for both the auto manufacturers but also road-builders and developers of new suburbs. Cheap fuel contributed to the massive credit expansion/boom that took place during the 1920s (it probably had something to do with the crash that followed as well). The entire focus of the producing industry along with government and finance to keep prices as low as possible by any necessary means. This included but was not limited to overproducing from domestic and allied countries’ oil fields, finance manipulations including generous subsidies, foreign policy initiatives, over-development of finance sector and war … both the price- and the other kind.

Efforts have been wildly successful: what has taken place in the century between the Rockefeller monopoly and the year 2000 has been the exhaustion of the $20 per barrel conventional crude oil. Not only is the $20 oil gone but so is the $30 and the $50: all that remains is the $100 and $120 and above.

A reason for the current nose-bleed prices is above ground factors that include fuel subsidies for wasteful consumption in oil-producing countries. These costs are not direct energy investments as EREOI would suggest but their effect in the marketplace is very similar. Once subsidies are in force it is hazardous to the health of government officials to remove or modify them (except to make them larger). Producer countries with capital inflows have the means by which millions of new cars are bought along with the roads to drive them on, American-style suburbs within which to meander aimlessly. There are also the American-style shopping centers with desert-indoor ski slopes. Not to be overlooked are the military establishments, the promotions of this or that religious lifestyle(s) in neighboring countries, the massively over-built concrete high-rise financial centers: there is the need to pacify restive citizens at great costs. In Saudi Arabia, the establishment has seen fit to turn the city Mecca into a knock-off version of Las Vegas complete with unimaginably ugly hotel development. The egalitarian Mohammad certainly spins in his tomb: this luxurious excess and over-spending is added to the price of every barrel of oil.

As the world’s motoring publics’ pockets are turned out empty there is the $100 oil and nothing else. As the publics becomes broke(r), the world cannot go back to using $20 crude again because there is very little more cheap crude remaining. The + $100 oil stays in the ground because the publics do not have the funds with which to buy it. It is the absence of cheap crude that represents the onrushing energy cliff.

To bring above-ground costs down to allow greater affordability requires ‘restructuring’ of the producers, presumably with cruise missiles and commandos, to create ‘failed states’ out of functioning societies. Aside from being presumptuous, restructuring that effects the producers significantly negatively effects consumers. The number-one presumption is that costs can be eliminated, rather the costs are shifted and multiplied in unpredictable ways. Restructuring other countries has been the losing proposition for the United States since the end of World War Two, this includes the Cold War. Best for the US to begin restructuring itself while it has some resources remaining to allow it to do so.

Comes now the the Iranian government official waving a nuclear fuel rod threatening to cut off fuel supply, insisting that Iran may or may not have nuclear weapons. The $110 price is obviously insufficient, Iran cannot pay its bills. The likely outcome of Mr. Fuel Rod’s actions is to precipitate the Iranian lunge over the energy price cliff that he desperately seeks to avoid. Fuel customers are flat broke and the American-style credit system the world has relied upon for the past fifty years or so is flat broken. The Yankees and the Europeans play the game of chicken imposing sanctions on Iran. The end are consequences that nobody can afford, the entire enterprise is theater.

If money flows into Mr. Fuel Rod’s oil account because the theater is (semi)effective, the funds avoid some other needy account. In the zero-sum world, the strictures on funds work their way back through the global economy to adversely effect Iran’s customers, then Iran itself.

Look at the relationship between supply and demand indicated by price. In general, demand is quite inelastic until the price point is reached when demand goes on strike and elasticity is ‘discovered’.



Figure 4: Fuel prices in flux by way of TFC Charts: In 2008, the price collapsed from $147 to $34 along with futures market open interest. What the latter price represented was the shocking diminution of demand or the ‘demand cliff’. This was caused by the unraveling of the shadow banking (non)system, resolving imbalances in the crude oil futures market and the effects of the very high prices on an infrastructure built assuming $20 per barrel crude. For a short period, + $100 crude pushed the waste-based economy over the demand cliff which led to the price cliff. Be prepared for something similar in the next few weeks or so .


BRENT CRUDE FUTR (USD/bbl.) 124.060 -1.410 -1.12% 11:51
GAS OIL FUT (ICE) (USD/MT) 1,029.500 -1.000 -0.10% 11:51
HEATING OIL FUTR (USd/gal.) 328.490 -3.100 -0.93% 11:51
NATURAL GAS FUTR (USD/MMBtu) 2.502 -0.048 -1.88% 11:51
GASOLINE RBOB FUT (USd/gal.) 312.520 -2.760 -0.88% 11:50
WTI CRUDE FUTURE (USD/bbl.) 108.930 -0.840 -0.77% 11:52

(Bloomberg) Brent crude stands at $124 per barrel. If the past is a guide, the current minispike will fail and prices will decline from here. Ominously, this spike is underway when much of the world is either in deflationary recession or teetering at the edge. All else being equal, an expanding world economy would pay $150 per barrel crude oil. $150 will not allow economic expansion, it is hard to see $120 allowing it.

There are two problems that extend outside of the petroleum energy regime, three:

– Peak oil is almost entirely an automobile problem. The almighty automobile is the axle around which modernity rotates. Its manufacture is the world’s single greatest industry, there is the required roads-and destinations construction, there is the advertising industry, the finance and insurance industries: the expansion of government into every corner of every persons’ life with the hated rules, laws, un-earned benefits and taxation: all of this is absolutely integral to automobilization of the world.

Much of government expansion has to do with the increasing importance of military and internal security forces to guarantee ‘low’ pump prices and to manage the effects of auto-driven suburbanization. Expansion of government reach parallels the increasing penetration of automobiles into every corner of the world. Take away the automobile and all that goes with it and there is not a peak oil problem. There is enough petroleum in the ground for use as high-quality lubricant and chemical feedstock — this excludes automobile uses — and at the most reasonable and affordable price for thousands of years at current rates of consumption, this forgoing leaves out that chemicals, plastics and lubricants can be recycled.

Chemists and lubricant refiners can afford to pay much more for their petroleum input than can the wasteful guzzlers who — as a matter of first principle — require the cheapest of all possible resources to burn up for nothing.

– It is possible/likely that the price peak cliff is on us now.

– Management is ‘all in’ with the current regime of pointless waste for abstract public benefits (and money wealth for themselves). Once current management is swept away by circumstance, a regime that accurately prices inputs, that uses credit for longer-term capital enhancement and husbandry can emerge in its place. It’s not that hard: any effort that husbands capital and improves it by way of conservation or by other means shall have access to credit. No other kinds of efforts will be financed. Put another way, the repricing phenomenon is underway and cannot be stopped. Investment financing for short-term returns has nowhere to go, there are no investments! This is particularly so within (credit thirsty) industry. All that is needed to emerge is the predatory conservationist.

Meanwhile, Prof. Bardi remarked:


Interesting story, Dmitri! I am still working at these models; now I discovered that there are other ways besides pollution to obtain the “Seneca” shape. It can be obtained by transferring resources from one source to another; which may be closer to what’s happening now. Pollution is something that hits us more on the long run.

Interesting also that your presentation at ASPO-USA was met with polite silence. People just don’t care about understanding what’s going on and what’s going to happen. If they are rich they care about how to make money on oil; if they are poor they care about miracle devices that will save us from the brink of the cliff.

Then, as we start falling, interest in understanding what’s going to happen will fade even more. I remember that you said something like that in your book, “Reinventing Collapse” – that in the Soviet Union, when the collapse started, nobody cared any more on why everything was collapsing.

Anyway, I am trying to write an academic paper on the Seneca effect. It is an exercise in futility, given the situation. But, in the end, it is not just my job. It is fun!


52 thoughts on “Looking At (Petroleum) Markets …

  1. p01

    Nature has a nasty habit of making nice curves and thought-out models irrelevant, not to mention the best laid schemes of mice and men.
    The oil/gas disruptions will be sudden and abrupt, not to mention they may happen in a nice sunny day, while the birds are singing outside, and said disruptions may not recover quick enough to stop a complete societal collapse. Or they may, the first time, but they may not the second time, or they may…and so on.

  2. jb

    From today’s Telegraph:


    Digging around a little, I see different versions of the Mearns Net Energy Cliff around, including his original in this post in June of 2008:


    There’s no date on the one embedded above, so I was wondering if you put the ‘We are Here’ arrow on the version posted above. If the arrow is in the right spot and we have a correction in the ‘next few weeks,’ then I would expect the price to bottom out around ~$60/b or so. In other words, this ain’t the ‘Big One’; we still have more price discovery to go. Thanks as always.

    1. steve from virginia Post author

      There is another one in a more current Oil Drum discussion (w/ Nate Hagens).

      I did put the (estimated) EROI on Euan’s chart, it’s hard to know exactly what the current energy extraction budget is. I think the consensus is about 10-1 but anyone offering an 8-1 argument would deserve a hearing.

      One thing to keep in mind is that the longer we proceed with the large output, high-volume/longer period the steeper the decline side is going to be. Stuart Staniford sez the world has reached a new high level of ‘production’. Increases include biofuels and refinery gains.

      Staniford averages EIA, OPEC and IEA sources: http://www.theoildrum.com/node/8959

      I don’t buy any premises here: the world needs 100 million barrels of conventional crude per day right now to keep the balls in the air. Not happening which is why the agony.

      As far as the price goes, anywhere has a good argument behind it. Crude has been in a bear market since 2008. No bear market lasts forever. At the same time, the real crude price is still going up (and negative real interest costs). I’m not sure I wanna be around when the real crude price starts to decline.


      1. jb



        From the article: “A society dependent on energy resources with lower EROI must also commit relatively more energy to the process of harnessing energy, hence has less available for other economic activities.”

        From the linked EB article, Cobb writes: “However, an EROI that drops from 20 to 1 to 10 to 1 results in the doubling of the part of the economy devoted to securing energy from 5 percent to 10 percent.”

        Thus we get huge un-payable debts, permanent mass unemployment, fewer cars on the road, auto and airline companies going out of business along with the industries and service sector jobs that cater to them. How else can you divert energy from a large percentage of the population so that these resources can be used to extract lower quality fuel by a growing, but still relatively small number of people, ie: oil riggers – ? Not to mention the diesel required to keep the U.S. military guarding production worldwide.

        In that case, you have to keep interest rates at zero and encourage speculation so that oil prices remain as high as possible for as long as possible. Besides keeping the government in business, you get the high prices needed for extracting lower EROEI fuels (ie: tar sands), profit for your campaign contributors, stability in KSA (for a while longer), and demand destruction in industrialized nations. And of course you need regime change in any rogue exporting nations that won’t play along.

        Good grief, forget $60; we might be lucky to see a reversal to $80/b!

      2. enicar333

        Now is the time for a tax of at least $2/gal to fund the infrastructure of the future and discourage waste.

        NOTE: I’ll self-restrain comments.

      3. jb

        enicar333: Better late than never, but the time to implement a heavy national gas tax was probably 1979. I agree with Kunstler when he says: ‘how about we just start telling the truth?’

      4. Mr. Roboto

        That would certainly have the effect of ressurecting car-pooling. Which would, of course, be a good thing. It could also result in more people using public transportation, and more rider-fares would likely be good for ailing transit systems such as Milwaukee’s.

      5. Mr. Roboto

        Speaking of which, I would sincerely hope that fuel used by public transit would be exempt from the tax for the sake of the above-mentioned ailing local systems!

  3. James

    The descent will not be a mirror image of the ascent, one in which we slowly give up the technology and infrastructure we have developed. People are all in the game when things seem to be getting better, but are likely to upset the gameboard if it seems they’re going to lose – everything. Unfortunately all of the high EROEI fossil fuel has been eaten already, including natural gas and coal. We can never again build anything like what has been built. In fact, we may not have enough energy to nurse our technological monstrosity into oblivion, let alone engage in new massive infrastructure projects.

    From your writing I’ve gathered that Rockefeller developed oil and needed a conduit to make it flow. He and others offered credit to create and market the machines (automobiles) that would guarantee that oil would flow from the ground just as fast as possible and maximize personal profits. Many were complicit in schemes to waste the oil. Was it a waste? Sure is a lot of fun cruisin’ around with the top down, lookin good surrounded by all of that colorful steel. Bernays must have been in on that.

    After reading your essay and Jeffrey Browne’s comment regarding net exports, its clear that growth in India and China will cease while other nations are sequentially starved of oil, or the credit necessary to buy oil. It makes perfect sense why oil exporters are targets of the West and why the police state is being beefed up in the U.S. and Britain.

    Maybe Australia will just sell China their highest EROEI coal to make up for some of the shortfalls in oil availability. Maybe I read today where some Australian billionaire was pushing for increased exports of coal to China. Some things never change.

  4. Reverse Engineer

    We started a debate on this topic over in the Doomstead Diner. My 2 cents below here.


    Orlov closes his post with the comment that “Humans are clearly smarter than Yeast”, but are they really? Not in aggregate it would seem. “intelligence” on the individual level does not necessarily translate to intelligence on the aggregate social level. In fact, there is plenty of evidence to suggest that when acting in aggregate (mobs, riots, goobernmints etc), Homo Sapiens is not very smart at all and pretty much acts just like Yeast does or the Deer on St Matthews Island did.

    So, based on the modeling here, yes a Fast Crash seems more likely than a Long Emergency, except for a couple of issues not considered. One is Ringfencing. If one collection of Yeast in the Petri Dish can Ringfence the necessary Agar to keep going while all the surrounding Yeast dies off, then a portion of the Global society might continue to live fairly well while the vast majority of Yeast are starving to death. Yeast can’t really ringfence, but Homo Sapiens can, at least to an extent anyhow.

    The second issue is Demand Destruction. In the case of Agar for yeast, without it they are just Dead. Not really true as far as Oil goes for Homo Sapiens though. Its not NECESSARY, it just provides a huge surplus of energy which allows many more people to be alive on the planet at a given time. Take away the oil, many people will certainly go to the Great Beyond, but unlike disappearing Agar for Yeast in a confined Petri Dish, not ALL necessarily will die.

    Third and probably most important insofar as the willful Ignorance to the problem facing us here is the fact that no mathematical model really can pin down an absolute timeline here. Doomers have been around forever, and even in just the Oil Era you have folks like M King Hubbert who predicted this sort of stuff long ago. Albert Bartlett’s graphs of Exponential Growth notwithstanding here, though intellectually you might grasp that this cannot go on FOREVER, its gone on for a very long time here already and it takes a certain BELIEF that the crash is really imminent that most people simply do not want to take. So they operate under the same “rules” of the game they know, because that is how you have to operate to live within the society. Back in the 70s, a small segment of the population tried to go “Back to the Land”, but really overall if you did that then and actually stuck with it, you did not get to enjoy all the Bennies of the last great Roller Coaster Ride of the Age of Oil. You know, if you are a subsistence farmer you do not get to ride Jet Planes to Hawaii for sunny vacations in Paradise every year. So at that time, this movement never really gained any traction.

    As an aggregate society, we cannot and will not make the changes necessary before the Crash hits us full on, and to mitigate the costs inside our own society we will attempt to ringfence and shift the burden of the Die Off onto other societies. How this dynamic plays out does not really have any good Ecosystem Analogue upon which to base a mathematical mode. The collapse we experience is likely to be highly assymetric, and here in the FSofA with the Big Ass Military, we may extend and pretend a whole lot longer than in other places as the burden of resource depletion is shifted to less powerful countries.

    In the end of course, the ringfencing will collapse by one means or another. its nearly certain to affect all countries within the next couple of decades, but will Collapse happen TOMORROW here inthe FSofA? Probably not, so most people just go about their daily tasks in life as they always have, because what other choice do you really have most of the time? Going Back to the Land and Off Grid now carries with it its own set of risks, and frankly MOST of the population of the Big Shities really does not even have such a choice to make at all. They are not informed of means and methods to live off grid, they don’t have Money to buy Hydroponic tubs, they don;t have a place to set them up. I’m not saying that it is IMPOSSIBLE to do this, Peter clearly has gone a long way towards it on very little money, but most people inside the Big Shities are not Peter, and they never will be. They depend on the systems for their lives, and when the systems fail, so also will fail their lives. Its a vast trap for which there is NO ESCAPE for many if not most people.

    You of course can mitigate your chances of being one of those people, you already HAVE by becoming aware and getting Prepped up. However, all the preps in the world do not resolve the social dislocation issues and consequences of systemic failures. You cannot really do too much about that other than to try to run away from the worst areas of the Big Shities, or prepare your Final Bugout.


  5. Ross

    So, from Orlov/Bardi and now Herr Steve we actually are narrowing a window into the time frame of the “spin out” based on the production crash in available liquid fuels. Something on the order of 20-40 years before we go off the net energy cliff and enter this permanently constrained position in the physical availability of petroleum and it’s derivatives?

    What a shame: most of the Boomers will be dead already.

    But, we could double fuel efficiency, or institute carpooling or discover cold fusion or teleportation…

    Like they say, it is not the fall that kills you but the sudden stop.

  6. dolph

    City life with its dependency on the grid and interconnected services is definitely problematic. But rural life, with its dependency on lengthy road transport, is even more problematic.

    Look, it’s possible to live a pretty energy poor life in the city. Just go to Mumbai or Jakarta to see this in action. Yet people still live and work and reproduce.

    Unfortunately, the doomers who head for the hills will be in the most pain initially as they are stranded in their homesteads. The word “boondocks” will take on a new meaning as vast stretches of the country become a sort of “no man’s land” where nobody of any means dares to venture.

    Which is not to say that cities will do fine. The collapse is global this time. But when push comes to shove, I’d much rather a be in a city, perhaps a smaller one, where there’s a critical mass of humanity to continue to perform basic services at a low level.

    1. Reverse Engineer

      There are intermediary levels between the Big Shities and the “Hills”. Smaller communities in low population zones with good local resources stand the best chance. There are numerous identifiable ones out there, New Zealand, the Falkland Islands, some parts of Canada like the Fjords of British Columbia and even some places in the lower 48. Also where I live, the Last Great Frontier of Alaska.

      Any city of a decent size depends on many forms of infrastructure that are highly energy dependent, foremost among these is Sanitation and Water Treatment. Population Density in such places makes self sufficiency on a local resource level nearly impossible. You need to be in an area where there are sufficient people to make a going concern of the community, but still small enough to back off energy dependent systems in fair short order. I wouldn’t pick a town with any more than 10K people, nor any less than probably 1000. It should be reasonably distant from Major Shities. There should be forms of local food production already operational that can be redirected and expanded if necessary.


  7. Franchisekid

    After reading this, I damn near ‘ished myself on the train. I have been thinking about the rate of decline for the last two years after blogging on the topic myself. To see real thinkers, people that really know this stuff, confirm my thoughts, is literally freightening.

  8. steve from virginia Post author

    First of all, great article by Chris Cook over @ Yves Smith looking at the same pot o’ stew from a different angle.

    It will be interesting to see what happens: http://www.nakedcapitalism.com/2012/02/chris-cook-the-oil-end-game.html

    One of the many problems w/ American cities is that the old trading infrastructure has been wiped away. Cities are now collections of arrogant, trendy, mostly young consumers living in ‘lofts’, there is also that boiling underclass. A hundred years ago there was the same underclass but the city was busy with railroads. At the waterfront there was shipping from other cites as well as nearby fishing grounds and agricultural market towns that were served by rivers, canals, estuaries or behind barrier islands. The big US cities were situated along waterways for a reason, they were easily accessible by all kinds and sizes of ships.

    All that infrastructure is done away with. Ocean shipping is in the form of gigantic container ships bringing assembled goods from China as well as petroleum products on barges and lighters: the ports are generally a long way from the cities accessible only by road. City waterfronts are now lined with condos and office towers. The maritime people who sailed the different kinds of ships are forgotten, so are the ships. ‘Transport’ means tractor-trailers driven over the highways. Everything is dependent upon diesel fuel and computers. Trade is finance derivatives wired back and forth over the Internet.

    It will take a long time to establish different kinds of trade, even if the suppliers/end users are willing, the mechanisms of a non-highway based, non-computerized, non-centralized trade have to be invented from scratch. It’s not enough to figure out how to build a coastal schooner or a canal boat, it’s finding ways to make the schooners and canal boats work as functioning instruments of trade, how to connect the markets and how to make some money in the interval, otherwise there are no enterprises in the first place.

    The time frame is that bit of a problem, also is the ongoing breakdown of central authority and its ability to exercise itself. What the Chinese call the ‘Mandate from Heaven’ is the accord reached between regime and public. Right now the understanding is between the regime and various (crime) bosses. The establishment has decaying credibility, as this process continues it loses its actual powers because it cannot pay for them. The Mandate means that people generally police themselves but genuflect in the direction of the central authority. Authority is a little padlock on a large door: it keeps the honest people honest.

    When mandate/authority vanishes everyone is out for themselves … by necessity. Exterior forms of authority will exist: swat teams and armored cars, drones and detention centers. These don’t cost very much (and they give the authority reason to keep paying itself). Authorities will be able to read your mail or monitor your phone conversations but there will be no police. Private guards will have to be hired or ex-police, there will be various mafias or gangs alongside community militias. Honest business/trade will have to fend for itself. Current cities here have a problem here b/c without real trade — local and otherwise — there are few other reasons for the big cities to exist.

    There is then a race: between how long it takes before cities can reinvent themselves as trading centers with the required infrastructures and how long it takes for the current consumer infrastructure in place now to fall apart. Using New York City as a judge (I lived in NY for 15 years) it took fifty years to transition from trading hub of the Atlantic to open-air shopping mall today. To build around the loft buildings, the freeways, the gigantic office towers and recreational facilities, to build a useful port city in either Brooklyn or Manhattan is hard to imagine particularly with the human material at hand. Add an energy diet and urban malaise it will take another fifty years with a great deal of luck: who is going to hold out that long?

    If you look @ Detroit, there is no trading infrastructure left anymore. Its citizens are largely dependent upon the state: there is no reason for that city to exist in city form (or for its suburbs, either). Look at suburbia and there is no real reason for IT to exist either: suburbs are the instrument of consumption/waste. Look @ New Orleans and the bits and pieces of trading infrastructure still exist: railroads, piers, canals, and the Mississippi River is still there. New York or other East coast cities? These have the rivers but the other infrastructure is long gone. Nothing but yuppies and a frustrated underclass.

    1. Reverse Engineer

      “One of the many problems w/ American cities is that the old trading infrastructure has been wiped away. Cities are now collections of arrogant, trendy, mostly young consumers living in ‘lofts’, there is also that boiling underclass. A hundred years ago there was the same underclass but the city was busy with railroads. At the waterfront there was shipping from other cites as well as nearby fishing grounds and agricultural market towns that were served by rivers, canals, estuaries or behind barrier islands. The big US cities were situated along waterways for a reason, they were easily accessible by all kinds and sizes of ships.

      All that infrastructure is done away with. Ocean shipping is in the form of gigantic container ships bringing assembled goods from China as well as petroleum products on barges and lighters: the ports are generally a long way from the cities accessible only by road. City waterfronts are now lined with condos and office towers. The maritime people who sailed the different kinds of ships are forgotten, so are the ships. ‘Transport’ means tractor-trailers driven over the highways. Everything is dependent upon diesel fuel and computers. Trade is finance derivatives wired back and forth over the Internet.”-Steve

      Steve, you are letting your romantic perceptions of 18th century transportation mechanisms run away with you again. Even if we had the Tall Ships built, how many of them does it take to carry the cargo of one Container Ship? A couple of dozen probably? Then how long to load and unload with Longshoremen? You would have a queue of ships 10 miles long in Boston Harbor all the time.

      Where would you get all the beasts of burden to pull all the barges along the canals? You cannot revert to these transport methods very rapidly, and even if you could they are not logistically capable of moving the vast amount of stuff around that our current methods powered by Oil are able to do. So you are right back around to the fact that before you can even consider Reverse Engineering back to 18th Century living, you have to knock down the population to 18th Century numbers. That will be some very messy bizness no matter how you cut it.


      1. steve from virginia Post author

        RE, YOU are the doomer, not me!

        If we are LUCKY we will wind up in the 18th century, if not we will wind up in the 14th.

    2. enicar333

      Sounds like Racine – where I am from, and just South of Milwaukee.

      With the massive loss of manufacturing jobs, empty factories have been turned into loft housing, hopes remain high for the harbor and it’s associated pleasure boat traffic, and now developing the Root River with resturants, water taxis, bike paths, ice skating rinks and a 3-4 season amusement Park will save us.

      The property taxes and loss of jobs is clearing the land of houses and minorities, and they are planning for re-development for DINKS.

      All this will only speed the rate of collapse, I fear – which leads me to a desperate feeling to get away from here this Spring.


      1. Mr. Roboto

        As RE is fond of saying, the “Big Shities” are going to be very bad places to be once collapse seriously gets underway and well-along.

    1. steve from virginia Post author

      Industrialization has never changed, never will change. It’s much worse in China, Vietnam, Indonesia, Pakistan, etc.

      When the management sez ‘competitiveness’ this is what they mean.

    2. dolph

      I read the Mother Jones article. Fascinating.

      I’m not much of a liberal, at least in the modern American sense because that word goes with too much baggage and assumptions. But this sort of thing sickens me. We are sick, top to bottom.

      If the collapse is needed to finally rid ourselves of this sickness, bring it on.

      1. Mr. Roboto

        WORD, Dolph. Word. This is such a loveless world in which we live, and I’m simply sick of it. I very well may not survive collapse, and you know what? I’m totally okay and at peace with that, to the extent I can be considering that the process that brings about my personal demise may not be entirely pleasant or peaceful. Nobody should get all alarmed and think that means I’m going to step into my shower stall and slit open my carotid artery with a box-cutter (they call suicide “the coward’s way out”, but it seems to me that doing so requires a certain bravery I simply don’t possess). But sometimes things are such that the end of your individual life is not the worst thing that can happen.

  9. arcos

    There is ONE variable, nobody seems to care of: the US$ (=Petro $)!
    If it comes to the end of the domination of the US Dollar for settling international commercial transactions, the $ will nosedive. And crude in $ prices will not collapse.

    1. Sandor

      we care. we are aware. we are prepared. give it a few years. guess where december 2015 WTI is trading? $93.60 last. $13 under spot. why is that? feel free to load up

      1. jb

        “why is that? feel free to load up”

        Sandor, I’m not a trader. Would you mind elaborating a little bit?


      2. Sandor

        Let’s look at the components of the Dec 2015 WTI Crude Price: The *perception* of supply and demand for Crude Oil in North America circa Nov 2015, especially that which is deliverable to Cushing, OK. And the *perception* of supply and demand for US Dollars circa Nov 2015.

        A clue is to be found in the Gold market and its *perception* of the US Dollar. Dec 2015 Gold futures are trading at an implied 1815/oz as the spot futures (Apr 2012) market trades at 1725/oz. That’s a 5.2% premium. That’s in line with about 1.4% annual inflation from here to Dec 2015. So the Gold market is pricing in a weaker US dollar and/or diminishing supply, and/or increased demand. But the Oil market is not.

        If we apply a 5.2% inflation premium to spot WTI futures, we get a projected price of $111.50/bbl, not $93/bbl. What gives? Let’s look at ICE Brent futures. Spot futures are trading at $121.50. Dec 2015 futures are trading at $96.12 last. That’s an even steeper discount than WTI! This tells us that this pricing structure called “backwardation” is not specific to WTI anomolies. In fact, the market expects the vaunted Brent/WTI spread to collapse by Dec 2015.

        The Gold market is the cleanest read we have on the *perceived* value of the US Dollar, IMO. Since Gold is tracking 1.4% inflation, 2015 Oil futures are projecting a roughly 16.6% price discount. This ‘discount’ means that *perceived* supply/demand balance is increasing *relative* to present supply/demand balance *perception*. One could deduce that the ‘risk premium’ of Iran/Israel wholly accounts for this 16.6%. Or one could deduce that the Oil markets also expect some substitution of demand going forward, or some increase of supply.

        Further research from major entities such as the IEA or the IMF gives us embedded market expectations for global Oil supply and demand going forward. I see little expectation that available Oil supplies will increase significantly by Dec 2015. The rest of the future price ‘discount’ must then be an expectation of reduced demand due to further increases in oil efficiency (see http://earlywarn.blogspot.com/2012/02/oil-efficiency-improvements-are-global.html) or a slackening global economy.

        My best guess is that most, if not all, of the “backwardated” oil curve comes from the Iran/Israel ‘risk premium’. Some fraction of the discount comes from an expectation of increased GDP Oil efficiency. Then there are the Chris Cook-type arguments which anticipate Dollar demand for future Oil to diminish as so much Oil demanded forward has already been paid for (‘monetized’) through derivative financial instruments.

        In any case, the market is not pricing in US Dollar collapse or the abandonment of the US petro-Dollar standard by Dec 2015. So if you think that’s where we’re headed, by all means ‘load up’ on Oil, or maybe better, Gold futures further out the curve. Just make sure to keep plenty of margin in your account because the swings promise to be violent.

      3. jb


        Thank you very much for your response. I am once again reminded to ‘keep my day job.’ Good luck with your accounts.

      1. dolph

        I continue to maintain the idea of a third survivalism (storage and barter), a third cash, and a third metals, or thereabouts.

        Don’t see a reason to change.

  10. Ellen Anderson

    In the simplest terms is that what you mean? Industrial capitalism operating at full capacity produces more than anyone could use (demand.) Industrial capitalism must grow in order to maintain itself as a system. In order to keep growing, it must produce a lot of what people don’t need and/or what they will need in the future. That is why you need credit – it allows you to bet on the future. It also allows the present to over consume (and get fat.)
    You would think that a growing population would be a good thing – and it is up to the point that resources become scarce. The traditional Marxist view holds that scarcity is artificial and that it is the growing concentration of capital in a few hands that will bring the system down. Reformers therefore want to reduce income inequality to keep the industrial system going. They did that in the mid 20th century when there were plenty of resources to go around in the US.
    But the fundamental problem for the industrial system is lack of the real foundational resource – cheap oil.
    Steve is correct that the oil used to keep this system going is mostly wasted because it is going into carz. (Mine just broke down and I am going to have to empty out my bank account to fix it so I am thinking about these things more than usual.)

    1. Sandor

      drive less. work less.

      the basic problem with ‘free market’ dogma is that men form mafia cartels known as ‘corporations’ and ‘countries’. price will theoretically solve the problem of diminishing resources by rationing demand, but not before ‘desertification’. Steve is right about ‘husbandry’ and ‘conservation’ as the best path forward w/r/t resource constraints, but the political meta-game does not appear promising, yet…

      credit is a form of trust, sharing – ‘efficient’ allocation of resources. if you allow me to borrow a hammer to build furniture, that is a form of credit. we can share tools, but it only works if we all take care of them! the problem is not credit per se, but the abuse of the relationship between counter-parties. forms of abuse are legion. but credit, or money for that matter, is not the ‘devil’. in theory, it is possible to turn all debt into equity, but again, the obstacles to this path are more psycho-logical than schematic. that said, neither money nor credit are necessary to organize human tribes, even at higher levels of complexity. it ‘merely’ requires a variant collective perception. this is where the local organizations can breed creative community structures ‘beyond’ money. i agree with RE that the optimal size for such ‘complex’ collectives (aka towns or villages) is in the neighborhood of 5-10 thousand. eco-political change will emerge from such ‘local’ experiments. *respect, patience, forgiveness, care* are the cornerstones of any such endeavour.

  11. Ellen Anderson

    I don’t think that borrowing = credit unless interest is charged.
    People can/should drive less but not driving at all would be a real luxury for me. Even when I lived without a car I had to rent one from time to time and things got delivered to me on trucks. That is why it is so important to figure out alternatives to production and distribution before the system breaks down altogether.
    Everyone should try to visualize how they would live through the next week if they woke up one morning and found the pumps were dry or unavailable to them and to their neighbors. If the refineries find it is no longer profitable for them to make gas and send it out to your local Mobil Station it is curtains for you. I really think that could happen to some regions.

    1. jb

      Hi Ellen,

      Gas shortages are already occurring:


      There are also cooking gas shortages in several countries. If you mean here in the U.S., I think it’s only a matter of time.

      I have been a hobby gardener for many years. One thing I’ve learned is that my yield is always way below my expectations. It’s too hot for the tomatoes, the slugs are eating the lettuce, the pepper seeds I saved didn’t come up, etc. I think this is why some people keep a healthy supply of food stored up. Having enough for the winter isn’t enough. You need enough to last until you or your friendly farmer can harvest something in early spring.

      Do we need to do this now? I guess it depends on what you think will happen if the central banks and their puppet governments lose control over the situation.

  12. Ellen Anderson

    Right, Josh. That is what I mean.
    I do store food and grow food and have chickens and goats. I have bikes and a draft horse. Having my car break down reminds me of how bad this is going to be.

    1. steve from virginia Post author

      I had a conversation w/ a friend of mine not too long ago, we discussed cars (of course). They aren’t going to disappear but they’ll exit the cities first b/c they are unnecessary.

      Consider the old pre-Castro cars in Cuba: you need a ‘runner’ that can be kept in repair w/ simple tools outside the need of a dealer’s garage.

      A lot of cars ‘first lives’ are in America, they live on in shadowy form overseas. Truck tractors that have outlived their usefulness on the Interstates are pulling cargoes in Russia. All of this for decades after they are declared ‘worn out’ in this country.

      Some kinds of cars are better suited to long-term survival than others. The new ‘high-tech’ versions have too much plastic, too many parts and are too fragile. The Japanese cars can absorb blows but the plastic parts and key engine components fail. The Toyota Camrys in their millions will be gone in a few years because the engine main seals fail and the replacement of the five-dollar parts costs almost $5 thousand dollars at a Toyota dealer. To change the parts the engine/tranny have to be removed from the bottom of the car. Replacing the spark plugs on these newer cars is a major undertaking that can run you over a thousand.

      You might do best looking for a much older car that has life to it. An older Volvo or a truck, something that is easy to fix. My brother had a lot of older US cars, he used a Ford van for his job. He traded it away but he also could have put in another (junkyard) transmission, it would have run another twenty years carrying two tons of tools and whatnot.

      Older Japanese-made small box trucks are cheap to find, small and easy to drive, easy to keep repaired, are very durable, I’m sure you’ve seen them: Hino, Mistubishi Fuso, etc. With or without the box on the back. The all run four-cylinder diesels that can be kept in operation forever.

      Older US pickups (can never be too old), Volvos, older Mercedes (the boxy ones), diesels, flatheads, straight-sixes, carburetors (not fuel injection), manual 3 and 4 speed transmissions. No 4wd, no A/C, no power anything (except maybe steering which may be necessary and brakes). No gadgets, simple as possible, able to sit for long periods. Another item to be aware of is tires which are sure to be in short supply.

      A vehicle over 25 years old is generally considered an ‘antique’ that doesn’t need to be weight-specific, pass emissions inspections and cost very little to register. A 1975 Chevrolet pickup truck: 6 cylinder gas, easy to find parts, standard wheels and tires, good for a million miles or more. There would be more on the streets except that people wreck them (and ship them overseas).

      Look to a sharing arrangement with others in a group helping to manage vehicle expenses.

      Yr ahead of the curve as the kind of community that was ag-centered doesn’t exist except here and there. There is little in the way of infrastructure for what it is you are trying to do. It’s just going to take time (re-inventing the wheel). It’s not ‘trendy’ being a farmer (except for people who are farmers!)

      1. Reverse Engineer

        NO 4WD? WTF? No 4WD, Carz are USELESS up here! My 89 Mazda MPV works pretty good, hopefully I can get a few more years out of it. 2 more years, its an “Antique”. LOL.

        When the Mazda Quits or the Gas runs out, Bullwinkle, Rocky, Sherman, Peabody, Natasha and Boris will have to pull me around on the Dogsled.



      2. steve from virginia Post author

        No 4wd: too complicated, too many parts to break. Simple is always best over the long ‘pull’.

      3. Reverse Engineer

        Maybe too complicated, but without it up here the Carz are worthless in the Winter. You get stuck too often.

        When the 4WD Mazda quits, its time to go with the 24 Paw Drive.


  13. Ellen Anderson

    I hear you and I agree with your advice. Wish I could figure out how to follow it. Farming is not profitable. Big ag gets government subsidies or no one would do it. Sustainable diversified farming enterprises don’t make much and most of them actually lose money. At some point they will be what we need but not now. So I have to make money on the side and hope that I can last long enough that people need to pay/trade enough for food to make sense for me or anyone to produce it. Ten years ago I bought a Ford Explorer for dual use – I can run my business and take the goats to the breeder and pick up hay and grain, etc etc. I also have a 1983 Dodge Ram that has been well maintained but I can’t get a safety sticker on it. Even with a farm plate you have to have a safety sticker. That means not a lot of rust and lots of other nonsense for a vehicle that only has to travel 7 miles on back roads to the farm supply store. But the mileage is terrible. I had a VW Diesel Rabbit – broken down always and rusty so I sold it. I have an old Mercedes diesel. Previous owner let it rust out so the engine is good but the rest of it is absolutely hopeless. The Explorer is perfect because it is respectable enough to drive for a white collar business person (I just don’t let anyone see the nanny berries in the back.) Its gas mileage is much better than the Ram. I am going to have to fix it and just spend the money. Perhaps after collapse farmers will be allowed to drive rusty old trucks and my off-farm business will dry up anyway.

    I am trying to live within two opposing economic systems neither of which really works now: the mainstream one and the offbeat one. I have two electrified recumbent bikes, a draft horse and two good feet but I still need a modern car. Ten years ago I thought that the auto-based economy would have collapsed by now so this car would see me through. Where are those predatory conservationists when we need them? (At least I think I can avoid going into debt for the moment.)
    Thank you for the suggestions. I will keep my eyes out and I will hang onto the Ram dooley.

  14. Sandor

    Saudi officials deny reports. Oil off the highs, but Brent still sits at $126.70, WTI $109

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