Just Kill Poor People

The Twitter algorithm has got me all wrong.

Perhaps because I like to ramble on about energy and inept politicians, it seems to think I’m a climate activist. Maybe I am, but certainly not of the placard wielding, “how dare you”, new religion variety.

My feed the other weekend was stuffed, and I mean Christmas dinner stuffed, with photos and videos from the “March to End Fossil Fuels” from around the world.

There were mums-for-climate, elders-for-climate, presumably drag queens-for-climate.

And good on them. Those things can be exciting. I went to an anti-Brexit march in London once that descended into a street rave in Charing Cross. Complete with DJs, flares, and the thrilling intoxication of being part of the mob. Fun times.

But that’s where my sympathy abruptly ends.

These protesters were marching, demanding, wailing for climate action. An end to new fossil fuels, to be precise. They hit the streets wrapped in a duvet of warm righteousness because they’re fighting for an undeniably good end: the protection of our natural world.

However, they fail to realize that any discussion on climate is desperately lacking if it doesn’t also involve physics, economics, geology, engineering, politics, diplomacy, anthropology, and any number of the other disciplines that make up the fascinating cocktail of “energy”.

Seen solely through a climate lens, their demands make sense. Apply these other constraints and you realize they’re looking at the world blindfolded through a kaleidoscope.

To help demonstrate this, let’s run a little thought experiment. What would happen if they got their way? If Just Stop Oil became the ruling party of the Western world tomorrow and decided to end all new hydrocarbon investment?

Let’s quickly set a few parameters. We’ll focus on oil and gas, ~70% of which is produced by state-run oil and gas companies in places like Saudi Arabia, Russia, and Qatar. That’s out of reach. Even for a hypothetical exercise like this, it’s too much of a stretch to assume petro-states would ever starve their golden geese.

So that leaves about 30% of oil and gas production in play. Think Exxon, Shell, BP, and thousands of other private and public oil & gas companies operating in cities, jungles, deserts, and oceans across the Western world. Let’s say they’re all ordered by Supreme Leader Greta to immediately suspend investment into oil and gas.

What next?

Runaway oil prices

Chaos. That’s what.

The moment the market gets wind of this edict, oil prices immediately go stratospheric. $200/bbl? Easy. $300? $400? Who knows. Pick your favourite very large number.

Why?

Well, this is where geology and physics make their grand entrance. Oil & gas production declines by roughly 6% every year as the fields are depleted and the pressure in the reservoirs declines. So, the industry needs to invest vast sums of dosh every year just to tread water, just to keep production flat, let alone grow.

The moment you stop investing, supply starts falling fast. A 6% decline rate on 30% of global production means we’re now losing 1.8% of global oil & gas supply every year. Uh oh.

Did someone say “supply”? Sounds like economics has entered the building.  

Oil is the world’s most critical resource. As I’ve written about here, it’s fundamental to everything we do. Your food, clothes, shelter, transportation, medicine, everything, is made possible by oil. And because it’s so important, people will keep buying it even if prices rise. Economists call this “inelasticity”. And demand for oil is as inelastic as rigor mortis.

Say the price of apples suddenly shoots up because of a poor harvest in Italy. You might instead start buying pears, thereby reducing demand for apples, and prices would come down again. Great.

It doesn’t really work like this for oil because there are no pear equivalents and it’s a critical resource. People just keep paying, pushing the price up and up and up, usually until the economy breaks or new supply eventually comes onstream.

Back in 2008 when oil prices hit a record high of $147/bbl ($210/bbl in today’s money), there was just a ~1 million barrels per day, or 1.1%, shortage in oil supply. Just Stop Oil and its pals want a 1.8% decline in supply, every year, ad infinitum, in a world where demand for oil is still growing strongly…

The takeaway from today’s unsolicited economics class: a small shortage in oil supply will create BIG upwards pressure on oil prices.

The common counter here is, “can’t wind and solar fill the gap?”. I’m afraid not. Not even close. They produce electricity, which is just 20% of global energy needs, so they aren’t even a substitute for most hydrocarbon uses yet. Think heavy industry, shipping, aviation, plastics, fertilizers.

Even if the world was fully electrified tomorrow, wind and solar’s growth isn’t nearly fast enough. After 2 decades, trillions in investment, and unrelenting political support, guess how much of our global energy they provide today?

A paltry 2%.

Relying on intermittent, diffuse, weather-dependent wind and solar to immediately step in and make up a shortfall is fantasy.

This is going to hurt

Ok, we’ve got out of control oil prices.

What does that mean for the world? Is it such a bad thing?

The bedlam would be so widespread that it’s impossible to capture and organise even a fraction of it in any cohesive order but let’s give it a go.

First, consider that energy is an input cost to everything. You can’t mine, process, fabricate, assemble, package, transport, sort, stack, or sell without energy. You can’t cook, eat, work, move, play, or party without energy. Energy prices rise and so too does the cost at every single stage of every single supply chain in the world.

You think inflation is bad now? It’s child’s play compared to what we’d see in a multi-hundred dollar oil world.

Let’s take a look at food as an example. We all like food.

Oil is needed to power the tractors that plough the fields, or the ships that transport the produce. Natural gas is needed to make fertiliser or to generate electricity for fridges and processing centres. Your Waitrose shops have been getting more expensive recently, right? You have rising energy prices to thank for that.

In a market of sky high energy prices, global food prices would quickly follow. The world’s poorest would be the first to get priced out of cereal markets and those that don’t starve would riot in the streets and do whatever they could to feed their families.

During the 2008 oil price spike, there was a global food crisis, pushing hundreds of millions into poverty. It has long been forgotten as the global economy stole the headlines when it started falling apart a few months later.

It’s not just your belly that’s fed by hydrocarbons. Almost every machine in every factory and processing plant in the world is reliant on electricity for power or hydrocarbons for heat. With rocketing energy prices, global industry grinds to a halt (have a look at Germany today), taking millions of jobs with it.

Things would be no better at home. Your utility bills would surge, heating your house would be a measure of last resort, and you’d ration the use of your gas stove. Cue more deaths (did you know that 9x more people die of the cold every year than they do the heat?) and rioters on the street.

This isn’t theory. We already got a taste for it last year during the energy crisis when protests over unaffordable utility bills erupted in 90 countries around the world from Ecuador to Italy. The Economist estimates that high energy prices claimed 68,000 lives last winter.

Again, that’s nothing compared to what we’d see in our no-new-supply scenario.

So much of your disposable income would go on those basic necessities like food and fuel that you’d have nothing left for anything else. No clothes, no eating out, no trips. It’s estimated that when spending on oil hits ~5% of total GDP, the economy goes into a downturn. In a $300/bbl oil world, the recession would be severe.

To be crystal clear. Excessively high energy prices mean the world’s poorest people die of cold and starvation. It really is as simple as that. For those that survive, your standard of living becomes severely degraded. Without affordable, reliable energy, society collapses.

And as the bitter cherry on top, where would all this money go? Well, it would flood from our pockets to our friends over in Moscow, Riyadh, and Tehran. It would be the most staggering transfer of wealth seen in history. Within weeks, the balance of geopolitical power would cascade in favour of our adversaries.

A whole new meaning to “resource wars”

Speaking of geopolitics. Let’s wrap this up with some war gaming. History is littered with examples of countries fighting over energy. See Pearl Harbour or Iraq’s invasion of Kuwait.

With US production now in terminal decline, Uncle Sam would need to find energy elsewhere. We know from recent history that the Americans aren’t shy of using their military might to secure hydrocarbon supplies.

They’d probably go after Venezuela’s embarrassment of oil riches. Mexico maybe. Brazil would probably be in the firing line too.

What about China? Well, they import most of their energy, so things would get messy. There’s nothing the Communist Party fears more than mass social unrest and, as we’ve discussed, nothing spells civil disobedience quite like a population that can’t eat and heat. They’d probably turn north to Russia, and through a combination of carrot and stick, ensure that Moscow keeps them supplied at a reasonable price.

That world’s most populous country, India, would be screwed. With negligible domestic production and limited military strength, they wouldn’t have many options. They’d have to suck it up and make do. Most likely you’d get social chaos on a scale and severity unlike anything seen before. They do have nukes though…

The even poorer, smaller countries like Pakistan, Bangladesh, and most of sub-Saharan Africa? No chance. Those that survive the food shortages would cut down every bush and tree in sight to burn as an energy source. Then, they would go all in on domestically produced coal.

Energy is life. You make it unaffordable in a world with 8 billion people and war and famine are inevitable.  

This isn’t theory

I know this all sounds apocalyptic but sadly it isn’t hypothetical. We’ve had relatively mini energy crises before. We know what happens: people starve, people riot, countries go to war. Yet this is the direct and assured consequence of what climate protesters are calling for.

Egged on by front page news coverage, naïve celebrities, and nothing better to do, they think they have the moral high ground. But behind the thin veneer of altruism and phony legitimacy is the inevitability that hundreds of millions would die within months, and civil society would disintegrate.

They compare themselves to the Civil Rights Movement, for Christ’s sake, but they’re really much more akin to Collectivization and the Great Leap Forward.

Most protesters, of course, have no idea. They’re just drunk on the ludicrously simple narrative that fossil fuels are bad and endless unscientific doomsday climate scenarios. They’re looking for identity, for belonging, and the climate church welcomes them in. If they really understood how critical hydrocarbons are to all human life, they’d roll up their banners and say a prayer for JD Rockefeller.

We can forgive them to an extent for their ignorance, like a puppy that keeps peeing on the carpet, but noise like this dictates how equally misinformed politicians behave, and that’s when it starts to get dangerous.

Climate change is a great challenge of our time but devastating energy shortages that guarantee untold suffering are not the answer.  

Thanks for reading! 🛢️⚡⚛️