Energy IS the economy. Or you could say, if the economy rises or shrinks, so goes the quantity of energy needed. Also if the quantity of energy rises or shrinks, so goes the economy. The relationship is one in the same.
From the EIA, worldwide oil and gas liquids production peaked at 102.3 million bpd in Q3 of 2018. It has fallen by 11% to 90.9 million bpd in Q3 2020. It's appears to be stabilizing slightly. The US drilling rig count has fallen by over 70% since last year. And that's after MASSIVE amounts of money (debt) injected into the world economy. I'd say we got very little bang for our buck. World debt levels, already high and possibly unsustainable, are rising into the stratosphere.
According to the oil expert Art Berman, US oil production will eventually fall by the same margin as the drilling rig count or 70%, if the rig count stays depressed at current levels. But the oil price needed to increase the rig count appears to be above $50 or $60 per barrel. With the world in Depression, consumers probably can't afford that. I don't think it's going to happen.
US total oil and gas liquids production has already fallen about 12% to 18.3 million bpd in Q3 2020 from the peak in 2018 or 6% per year.
If Art is correct expect an eventual decline of US production to about 6 million bpd (a 70% decline) in the coming years. It seems crazy, but he's THE expert in oil and gas.
The huge increase in US production (shale 'miracle') in this past decade hid the decline of production worldwide. So, if the US will lose another 12 mmbpd in the next few years, then world production could decline to 78.9 million bpd (from the peak of above). That would represent a 23% decline in world production from 2018.
But this represents a total decline of 23% (or an additional 11% lower) for the world economy in the next few years. Remember: energy IS the economy. That amount is solidly in Great Depression territory. This is pretty much baked in the cake at this point. We're already in a 'regular' economic depression, so we're heading for a truly Great Depression.
The reason it's baked in the cake is that it would take a large world oil price increase to fund a rise in the rig count and production. Only rapidly rising US and world debt can stimulate that demand. But how long can that go on?? And we're already seeing perverse market bubbles in bond and stock markets and bitcoin. Inflation is already perking up. The shift from money to "hard" assets has begun.
In 2015, I wrote in my post End of Cheap Energy and Peak Debt Levels Presage Collapse
..that we've reached "peak-cheap-oil." This means that the marginal cost of oil is so high now that when additional barrels of oil are demanded -- as is the case when the economy grows -- oil prices rise so quickly that it hurts consumer incomes and puts the economy in recession. That happened in 2008 when oil prices hit $140 per barrel. Consumers found their budgets so pinched that many stopped paying their mortgages. Mortgage debt stress morphed into a financial crisis and deep recession. In 2015, oil prices greater than $100 caused the economy to slow.The era of cheap energy is over. If the economy tries to recover, oil prices rise so high that it kills the economy/consumers. If we can't afford high oil prices, then we cannot have growth. And the price at which oil is affordable, ie., $30 to $40 per barrel, hurts the oil producers and oil producing countries (and kills oil exporter countries government revenues). Remember, most Middle Eastern countries need $100 oil to subsidize their populations. The subsidies continue with governments selling debt.
So, energy production will eventually drop and all the nations, and especially the oil and commodity producing countries, will tend to remain in recession with large deficit spending. What's needed to "save" us is cheap, ie., $10 oil, for an extended period or a miracle in cheap energy technology.
Energy and World Population
In Figure 3, Gail "added a rough estimate of the expected drop in future energy consumption that might occur if either (1) the beginning of peak fossil fuels is occurring about now because of continued low fossil fuel prices, or (2) world economies choose to leave fossil fuels and move to renewables between now and 2050 in order to try to help the environment. Thus, Figure 3 shows my estimate of the pattern of total world energy consumption over the period of 1820 to 2050, at 10-year intervals."We are hitting energy limits right now. Energy per capita is already shrinking, and it seems likely to shrink further in the future.... In total, the world becomes a poorer place. How is the pain of this reduction in energy consumption per capita to be shared? Is it fair that travel and restaurant workers are disproportionately affected? Worldwide, we are seeing a K shaped recovery: The rich get richer, while the poor get poorer. A major issue is that while we can print money, we cannot print the energy supplies needed to run the economy.The world economy seems unable to accommodate 7.8 billion people, and we will have no choice but to face this issue.
|Figure 3, World Energy Consumption Energy for years after 2020 is assumed to fall by 6.6% per year, so that the amount reaches a level similar to renewables only by 2050|
|Figure 4, World Energy Consumption Per Capita|
(Figure 4 Assumptions: Amounts shown in Figure 3, divided by population estimates by Angus Maddison for earliest years and by 2019 United Nations population estimates for years to 2020. Future population estimated to be falling half as quickly as energy supply is falling.)
|Figure 5, Ten Year Ave Annual Increase/Decrease in World Energy Consumption|
Rise of National and International Conflict
Dip 1: 1861-1865 US Civil WarDip 2: Several events1914-1918 World War I1918-1920 Spanish Flu Pandemic1929-1933 Great Depression1939-1945 World War IIDip 3: 1991 Collapse of the Central Government of the Soviet UnionDip 4: 2020 COVID-19 Pandemic and Recession"
Trying to get [oil] demand back up through more debt seems likely to lead to debt bubbles, which will be in danger of collapsing. There may be temporary price spikes, but a permanent fix is virtually impossible. This is why I am forecasting the severe drop in energy consumption shown in Figures 3 and 4.