Engineers did not invent the steam engine — the steam engine invented them.
What will a post-oil society invent?

This is the seventeenth post in the series “Engineering in an Age of Limits”. We are facing limits in natural resources, particularly oil; our finances (money seems to be increasingly disconnected from actual goods and services); and the environment as we continue to dump waste products into the air, the sea and on to land.

We are also facing a transition as the Oil Age comes to an end. This is not the first time that society has faced such a shift. At the beginning of the 18^th century the principal source of energy in northern Europe was wood. However the forests were mostly depleted so a new source of energy, coal, had to be developed and exploited. The extraction of coal from underground mines posed new technical challenges particularly with regard to removing the water that flooded those mines. So new technologies, particularly the steam engine, had to be developed. Necessity was indeed the mother of invention. These technological developments led to many changes in society, including the creation of the profession of engineering. The transitions that we are currently experiencing as we look for alternatives to oil are likely to generate equally profound paradigm shifts.

In this blog we consider two questions:

1) What new paradigms, new ways of looking at the world, will develop, analogous to the development of engineering in the early 18^th century; and

2) How can engineers and other technical professionals help navigate the troubled waters that we are entering?

For a complete list of posts to do with the Age of Limits please visit our Welcome page. We also have a LinkedIn forum that you are welcome to join.

Productivity Slowdown

In last week’s post, Greek Gifts, I suggested that one of the root causes of the on-going Greek economic problems is that the world’s economies are hitting ‘Age of Limits’ barriers. In the post I stated,

Once we realize that our problems are caused by resource and environmental limits that prevent the creation of additional complexity then we may be able to work toward solutions, even though those solutions could well result in a conscious decision to simplify and therefore shrink our industrial systems.

The thinking behind this statement is that societies such as ours solve problems by increasing complexity. But increased complexity requires ever increasing expenditures of energy; if that energy is not available then it is no longer possible to add either complexity or growth. If this theory has merit then what we are seeing in Greece is the reverse effect: reduced affordable energy supplies lead to a simplification of systems which will lead, not to growth, but shrinkage. To repeat the words of Joseph Tainter in his book The Collapse of Complex Societies. 

1. Growth comes from increased complexity because it is useful in solving problems;

2. Increased growth and increased energy use go hand in hand — they cannot be separated;

3.Complexity is not free — there is always a cost;

4. When the cost/benefit crosses a threshold decline starts; and

5. Decline is associated with increased simplification (which is generally involuntary).

If this analysis is true then attempting to solve the economic problems of Greece through ever-increasing austerity will simply make a bad problem worse.

This week Robert Samuelson of the Washington Post wrote an editorial “Productivity mysteriously goes bust”. He starts off by saying,

What’s surprising about the disappointing slowdown in productivity is that, by all outward signs, it ought to bebooming.What’s especially baffling is that, superficially, outside forces seem to favor faster productivity growth. 

He notes that this slowdown is a world-wide phenomenon and lists some of the reasons that should have caused anincrease in productivity. They include,

1. The Internet;

2. Activist investors; and

3. Globalization

He concludes by saying,

The productivity bust is a big story. It’s also a bit of a mystery.

The Red Queen

Actually, there is no “bit of a mystery” — like most economists he does not realize that growth in productivity requires an abundant supply of affordable resources, particularly oil, as illustrated in Lewis Carroll’s famous storyThrough the Looking-Glass. In it the protagonist, Alice, meets the Red Queen. Suddenly they start running.

Alice never could quite make out, in thinking it over afterwards, how it was that they began: all she remembers is, that they were running hand in hand, and the Queen went so fast that it was all she could do to keep up with her: and still the Queen kept crying ‘Faster! Faster!’ but Alice felt she COULD NOT go faster, though she had not breath left to say so.

The most curious part of the thing was, that the trees and the other things round them never changed their places at all: however fast they went, they never seemed to pass anything. ‘I wonder if all the things move along with us?’ thought poor puzzled Alice. And the Queen seemed to guess her thoughts, for she cried, ‘Faster! Don’t try to talk!’ . . . and still the Queen cried ‘Faster! Faster!’ and dragged her along. ‘Are we nearly there?’ Alice managed to pant out at last.

‘Nearly there!’ the Queen repeated. ‘Why, we passed it ten minutes ago! . . . ‘Faster! Faster!’ And they went so fast that at last they seemed to skim through the air, hardly touching the ground with their feet, till suddenly, just as Alice was getting quite exhausted, they stopped, and she found herself sitting on the ground, breathless and giddy.

The Queen propped her up against a tree, and said kindly, ‘You may rest a little now.’

Alice looked round her in great surprise. ‘Why, I do believe we’ve been under this tree the whole time! Everything’s just as it was!’

‘Of course it is,’ said the Queen, ‘what would you have it?’

‘Well, in OUR country,’ said Alice, still panting a little, ‘you’d generally get to somewhere else—if you ran very fast for a long time, as we’ve been doing.’

‘A slow sort of country!’ said the Queen. ‘Now, HERE, you see, it takes all the running YOU can do, to keep in the same place. 

This image, with Greece being Alice and the Red Queen being Europe, in which they both must run faster and faster just to stay in one place, is compelling — and extends to most other countries in the world. It also provides an  answer to Samuelson’s conundrum. As a society we are spending more and more effort just to maintain what we have, just to stay in one place, there is little or nothing left over for growth. And this predicament (not problem) will only get worse as the world’s ERoEI (Energy Returned on Energy Invested) continues to fall (see Nine Pounds of Gold). 

Which brings us to our second Victorian girl: Goldilocks.

Goldilocks and the Three Bears

In Goldilocks is Dead Richard Heinberg compares our plight to that of Goldilocks. She has entered an empty house and sees three bowls of porridge on the table. She tastes them and finds that the first is too hot, the second is too cold but the third is just right. Heinberg uses this story as an analogy for the problems we are facing now. We need a price for oil that is “is not too hot, and not too cold”. If the price of oil is too high then the world economy wilts; if it is too low then oil companies cannot make money on their new, low ERoEI prospects (back to Nine Pounds of Gold).

Heinberg asserts that we have left the “just right” zone.

. . . I discussed what I call the Goldilocks price zone for oil, natural gas, and coal, a zone in which prices are “just right” — high enough to reward producers but low enough to entice consumers. Ever since the start of the fossil fuel era, such a zone has existed. Sometimes price boundaries were transgressed on the upside, sometimes the downside, but it was always possible to revert to the zone. 

But now, for oil, the Goldilocks zone has ceased to exist. 

Price of Oil

One of the most startling developments of the last twelve months was the drop in the price of oil during the second half of 2014 from around $110 to $55 per barrel. As we have discussed elsewhere the proximate cause of this event was likely a decision by OPEC to maintain high production rates in order to drive new producers, particularly U.S. tight oil, out of the market. But there are reasons to believe that there are longer-term reasons for the drop in the price of oil. Most analysts would argue on the following lines:

1. It is getting more and more expensive to find and extract new sources of oil.

2. Hence the price of oil will go up.

3. General inflation of prices will follow on.

However, another line of reasoning would be:

1. High oil prices cause an economic slowdown.

2. This leads to increased unemployment and/or low wages.

3. Hence demand for oil drops.

4. Hence the price of oil drops.

When we look at what is going on in the world’s economies the second explanation seems to be the better one.

We have seen that that Robert Samuelson faced a dilemma with regard to the productivity of world economies. His puzzlement may lie in the fact that he has failed to recognize the role of diminishing affordable energy supplies. Indeed it would seem as if a structural weakness of most economic analyses is that they rarely recognize the physical limits of the world. For example, they may say, “If prices go up then supply will increase correspondingly”. This may be true for manufactured goods but it is not true for natural resources such as oil. Although there is plenty of oil in the ground its ERoEI is inexorably falling — the supply cannot go up to match prices.

The Red Queen and the Age of Limits

We started this post by describing the with the Red Queen Dilemma  — Alice and the Red Queen need to run faster and faster just to stay in one place. This trope has been used to explain the nature of evolution. In a constantly changing environment all species must adapt just in order to stay in place. If they do not then they eventually disappear. Such a concept is well understood by most of us in the context of endless progress. Businesses and organizations of all types know that they have to develop new products and systems just to keep up. These advances create the productivity gains of recent years — the gains that are, as Samuelson points out, no longer being repeated.

The Red Queen principle applies equally well to the Age of Limits. But successful adaptation will require an understanding that resources are declining and that successful organizations will have to learn to work in a much simpler world than the one we live in now. Failure to do so will lead to their eventual failure.

l’Optimise

The above sub-title comes from Voltaire’s book Candide, a work that I have referred to in previous posts. His satirical writing can be seen as a work of optimism in spite of all the bad things that take place. Therefore, where possible, I will end these posts with a few words of optimism. (I started doing this in Denying Blackbeard — Part 2 andRenaissance Man and Climate Change.) In this post I offer the following thought.

Our economies and societies are going to become much simpler. This is not a choice.

About the Author

Ian Sutton is a chemical engineer with over 30 years of design and operating experience in the process industries. He provides services in all areas of process design, plant operations and process safety management — both onshore and offshore. He provides consulting services to senior management on the implementation, effectiveness and cost of process safety and risk management programs. His clients include companies in oil and gas production and refining, pipelines, chemicals, minerals processing, and food production.

You can follow along with Ian’s thoughts and musing on process safety at his personal blog, The PSM Report here.

He has published the following books with Elsevier:

Process Risk and Reliability Management, 2nd Edition
Plant Design and Operations
Offshore Safety Management, 2nd Edition