The End of Cheap Oil

Gregor Macdonald: What the End of Cheap Oil Means

On the heels of Chris' recent report clarifying the global net energy predicament, he and PeakProsperity.com contributing editor Gregor Macdonald sit down to talk in depth about the broken relationship between energy costs and economic growth.

For much of the twentieth century, the developed world saw a steady march upwards in wages and living standards, due primarily to huge quantities of cheap, high-yielding liquid hydrocarbon. As we find ourselved bumping along the plateau of Peak Oil's apex, suddenly we find "growth" is a lot harder to come by.

Of course, if you follow the news today, this is not the story you are hearing. Talk of an energy bonanza and imminent energy independence (in the US) are everywhere, thanks to gas fracking and tight oil production. What is missing from the headlines is the cost side of the equation and a blindness towards future demand.

For certain, shale gas will be a boon for the US and some other countries. But very little is transported these days by gas and there are no mega-sized infrastructure projects underway to change that anytime soon. Extraction of new tight oil plays is increasing production, but not by enough to offset other field declines elsewhere in the world, and not at the prices we were used to over the past century. The era of cheap oil is over, and these higher permanent prices act as a boot on the throat of economic growth. Hence the mired global economy we have been experiencing in recent years.

Rather than fooling ourselves with fanciful "energy independence" pablum, we should be looking hard at what kind of future we want to have now that oil is no longer cheap. And we should be asking ourselves in regards to the remaining fossil fuels we're extracting: How can we put these non-renewable BTUs to their best use, before they become expensive, too?