Book Review: The Halt Of Growth

Jeff Rubin's book The End Of Growth is a goodness introduction to the impact of Peak Oil on the economic scheme as well as markets. It was published inwards 2012, as well as the Kindle version has been updated since as well as then (note that I did non read the updated version). Although the volume is non perfect, I retrieve it has some advantages over other analyses of Peak Oil. Although Peak Oil has been proclaimed to survive dead, I explicate the advantages of starting to analyse it straight off - y'all desire to empathize the concept before it rises i time to a greater extent than from the grave.


Jeff Rubin was the Chief Economist at CIBC world markets, as well as wrote the before book, Why Your World Is About To Get H5N1 Whole Lot Smaller, I was familiar with his analysis based on his visits to my previous employer. This is why I picked out his volume for a review, fifty-fifty though at that topographic point may survive to a greater extent than recent publications. Since Peak Oil is a fairly slow-moving process, I am non besides concerned that the volume is out of date.

Book Description

The volume is 259 pages, excluding the 12 pages of notes as well as the index. It is aimed at a broad audience, without excessive technical exceptional nor detailed investment recommendations.

The volume is divided into 2 parts, with the commencement business office explaining why he argues that economical increment depends upon inexpensive oil, as well as the instant business office explains what the economic scheme volition facial expression similar inwards a no-growth world.

Why Read About Peak Oil Now?

It may look to survive a fairly unusual fourth dimension to review a  book on Peak Oil. It has been declared to survive dead inwards diverse articles. Moreover, at that topographic point is a reasonable guide a opportunity that fossil oil prices could markedly slide over the coming months inwards reply to cooling of increment inwards China. (I do non follow the Chinese economic scheme plenty to guess the probability of that outcome.) Lower liberate energy prices could campaign mayhem with high-cost, over-leveraged North American shale producers, as well as so high liberate energy costs may survive concluding thing investors volition survive worried about.

However, if y'all are novel to the concept, that is the best fourth dimension to facial expression into Peak Oil. It is a slow-moving structural framework, as well as fossil oil cost cycles volition come upwards as well as move inside that framework. If y'all start paying attending to Peak Oil when fossil oil prices are shooting higher, y'all are real probable to panic as well as over-extrapolate the trend. This happened to a lot of people inwards 2008, as well as that in all likelihood provides a partial explanation for why enthusiasm for Peak Oil has waned. (The hype almost the North American shale liberate energy bonanza is presumably some other of import factor.) And it should survive noted that some of Jeff Rubin's calls inwards 2008 did non plow out besides well, as well as those could survive traced to embracing Peak Oil besides tightly. Although I may beak over that topic elsewhere, I would underline that what happened inwards 2008 provides a goodness instance of why enthusiasm for Peak Oil needs to survive tempered.

Investors as well as analysts demand to larn from their ain mistakes, but it is a lot less expensive to larn from others' mistakes.

Will Growth Really End?

I receive got some reservations regarding diverse parts of his analysis. One primal surface area is the inquiry whether "growth" tin terminate continue. In Sustained Growth On H5N1 Finite Planet,  I gave a somewhat theoretical explanation of why real GDP increment tin terminate move along despite the finite-ness of the world as well as the Earth's resources. To summarise, liberate energy tin terminate shrink every bit a per centum of GDP, as well as at that topographic point are biases inwards the construction of gross domestic product to allow it grow, fifty-fifty though the "standard of living" is non actually improving.

H5N1 supporter of Jeff Rubin's analyses could struggle that my stance is unrealistic. In practice, liberate energy cost spikes are associated with recessions inwards the United States. And given the importance for U.S. consumers for unusual exporters, when the U.S. economic scheme catches a cold, the residuum of the world tends to acquire pneumonia. Although I recognise that the historical human relationship is strong, liberate energy prices are non the solely component driving the economy. For example, the U.S. economic scheme entered recession inwards Dec 2007, before the cost of fossil oil shot up. Although the rising inwards fossil oil prices did non aid the U.S. consumer, the credit markets were already inwards disarray, as well as the convulsion around the bankruptcy of Lehman Brothers would in all likelihood receive got happened regardless.

But if y'all retrieve of "economic growth" every bit a rising inwards a criterion of living, at that topographic point are less reasons to dispute the stance that Peak Oil is synonymous with the "end of growth".

What Is Peak Oil?

The most useful parts of the volume are the description of what Peak Oil is, as well as how it impacts the economy. As a old sell side Chief Economist, Jeff Rubin has a lot of experience inwards summarising why technical subjects affair to investors. This is the primal payoff this volume has over a volume written past times someone similar a physicist or geologist, at to the lowest degree for someone novel to the subject.

The commencement primal hollo for is that Peak Oil does non hateful that "we are running out of oil". What matters is the rate of extraction, and the liberate energy costs associated with that extraction. As an extreme example, at that topographic point is presumably plenty Uranium inwards my dorsum yard to mightiness a nuclear reactor for some fraction of a second. However, the liberate energy needed to extract that Uranium is larger than would survive generated past times that reactor, as well as so it is condom to tell that this Uranium would never survive mined. (It volition decay, but that's some other issue.) Therefore, i could tell that Uranium supplies volition never "run out" - since at that topographic point volition ever survive some inwards my dorsum yard - but that is a completely pointless observation. What matters is how much at that topographic point is that tin terminate survive profitably extracted.

If nosotros plow to a to a greater extent than reasonable example, receive got North American shale hydrocarbon production. In fellowship to extract fossil oil or natural gas from that shale, high pressure level H2O as well as toxic chemicals are injected into the stone to fracture the stone formation (hence the nickname "fracking"). The characteristics of these wells are different from conventional wells - at that topographic point is an initial flare-up of flow, which tails off relatively speedily (being uneconomic afterward almost five years).

Let's assume that such wells halt producing afterward five years (for simplicity; I am uncertain what the exact reject rates are). What happens if that if nosotros keeping drilling the same number of (non-dry) wells each year, nosotros volition halt upwards inwards a steady province where producing wells number five times the number of (non-dry) wells drilled each year. In fellowship to double production (in the brusque term), all y'all demand to do is double the number of wells y'all drill each year, as well as the amount of producing wells volition double inwards five years. Roughly speaking, that is what has happened with North American shale production. (Note:this assumes that the number of dry out wells drilled, as well as the average current charge per unit of measurement per good are constant.)

Why did I add together the qualifier "short-term" above?  It is because of  "Peak Oil": the current rates of novel wells are presumably lower than older wells. This happens every bit a final result of the presumed competence of fossil oil as well as gas drillers - they drill the "sweet spots" first, as well as and then they are forced to move afterward to a greater extent than marginal sites. Over time, for the same amount of drilling activity, the current charge per unit of measurement volition drop. Within the Peak Oil community, the feeling is that this fate volition hitting shale fossil oil production inside North America inside a few years. (Natural gas output has plateaued every bit at that topographic point is already to a greater extent than render than demand. Drilling for gas could survive ramped upwards again.) Please complaint that although those forecasts facial expression plausible to me, I am non an expert. Unfortunately, fossil oil production forecasts are an of import business office of the valuation of fossil oil as well as gas companies, as well as so the forecasts tin terminate survive affected past times the Wall Street hype machine.

Rubin emphasises that this component volition Pb to what is straight off referred to every bit an "undulating plateau" of production, rather than a smoothen bell bend shaped peak. Too much fourth dimension was wasted inwards the Peak Oil community plumbing fixtures mathematical curves to production data, as well as besides much emphasis was paid to what would hap when the peak would survive reached. Production rates depend upon the economic science of demand, as well as non only geophysical constraints.

Increasing Cost Of Production

In improver to rates of production dropping, cost of production rises every bit to a greater extent than marginal sources are tapped, Sources similar the Tar Sands were known almost for a long time, but they were unable to survive profitably tapped.

Whether or non it is economical to extract an liberate energy origin is a slippery concept. At whatsoever hollo for inwards time, this is determined past times the monetary costs. But since liberate energy prices are expected to rise, won't those sources move economical? The job is that this is non necessarily true. The cost of production may yet rising to a greater extent than than the rising of the output. The ground is that the liberate energy inputs are greater than the liberate energy value extracted. For example, corn ethanol is an economical disaster every bit the meshing liberate energy from the ethanol is less than the liberate energy needed to harvest the corn. The job concern is solely feasible every bit the final result of a authorities mandate as well as subsidies. This analysis is known every bit the Energy Return On Investment.

These increasing costs deport on almost all liberate energy sources. Rubin discusses the province of affairs for coal. Although increasing tonnages of coal are beingness extracted inwards the United States, the lineament of the ores are dropping. Rubin notes that inwards terms of the output liberate energy value, coal production inwards the USA peaked inwards 1998.

Oil - Critical For Transport

The focus on fossil oil is non an accident - liquid fuels are critical for carry as well as the industrial infrastructure. Other than for trains, diffuse sources of liberate energy are inadequate for carry every bit the density of liberate energy per unit of measurement of majority is besides low. Additionally, industrial equipment needed for mining as well as the maintenance of the electrical grid run on diesel fuel.

The implication is that if at that topographic point is a shift towards other liberate energy sources (renewables, nuclear), some liberate energy volition demand to survive inefficiently converted into liquids that back upwards transport,

Oil Producers Are Where Consumption Growth Is

H5N1 pregnant business office of the volume discusses the province of affairs inside oil-producing countries. Within OPEC inwards particular, the authorities offering subsidised nutrient as well as liberate energy inwards fellowship to maintain their concord on power. For example, gasoline inwards Kingdom of Saudi Arabia costs thirteen cents a litre. Additionally, the province is a prodigious consumer of water, which is increasingly beingness generated past times fossil fuel powered desalinisation. As a result, at that topographic point are projections that Kingdom of Saudi Arabia would eat all of its production past times 2030.

This component needs to survive kept inwards hear when at to a greater extent than optimistic global fossil oil production increment projections. The production increment may occur, it only volition non available for the developed world. (Note that although at that topographic point has been slap-up excitement almost the USA producing to a greater extent than fossil oil than it imports, that only agency that is only importing slightly less than 50% of its consumption.)

Muddling Through

Although Rubin does non highlight the issue, at that topographic point is ground to believe that the industrialised economies tin terminate move along to muddle through for a considerable fourth dimension before liberate energy constraints kill increment completely - perchance decades.

• Demand destruction. H5N1 long-term rising style inwards liberate energy prices volition forcefulness commutation as well as conservation efforts.He also notes that taxing liberate energy - such every bit the steep taxes imposed inwards Kingdom of Denmark - could forcefulness conservation every bit well. Although it appears unlikely inside the United States, it may survive that strategic considerations may forcefulness a alter of direction.
• Lower liberate energy usage does non entail a lower criterion of living. Europeans receive got a higher criterion of living with a much lower average degree of liberate energy consumption. People may encompass things similar wheel riding.
• Neoliberal Degrowth Policies. Rubin notes that the concluding recession did a real goodness task of reducing carbon emissions. He was rather polite, blaming this on the recession as well as non policy. Somewhat ironically, gratis marketplace oriented policies throughout the developed world receive got done a rather spectacular task at reducing consumption with the view as well as lower classes. For example, deregulating financial sectors to allow housing bubbles as well as busts, structural reforms to labour markets, as well as austerity receive got done a goodness task of reducing full-time job with youth. Unfortunately, since the neoliberal policies were supposed to survive promoting growth, Green parties receive got non given the conservative parties credit for their ecological achievements.

Weak Points Of The Book

The volume is non perfect. It is fairly introductory, which does boundary its usefulness for researchers. The information was oft presented inside the text, piece I would prefer charts to seat information inwards historical context. And every bit I complaint above, the human relationship betwixt increment as well as liberate energy consumption should receive got been examined to a greater extent than closely.

I also depart with his analysis at diverse points. He yet has a style to connect besides many factors to energy; economies receive got cyclical demeanor that is independent of the cost of energy. In particular, I gave upwards reading his analysis inwards Chapter 2 - "Debt Is Energy Intensive". I receive got serious doubts almost conventional financial policy analysis every bit it is; forcing a linkage to liberate energy costs makes it fifty-fifty worse. All the developed economies were hitting past times higher liberate energy prices, but it was solely the euro surface area that had a sovereign melt down. That is because liberate energy prices receive got niggling to do with the dubious pseudo Gold Standard the euro surface area nations forced upon themselves.

Not H5N1 Doomer Book

Another payoff of this volume over other sources of information almost Peak Oil - inwards particular, spider web sites - is that he does non wallow inwards pessimism. Being a "doomer" is a widespread job inwards meshing debates. But every bit I complaint above, the developed economies should survive able to avoid catastrophes for a long menstruum of fourth dimension (although European policymakers are flirting with disaster every bit I write). As I discussed here, the markets as well as economical policy makers are unable to focus on the long-term risks posed past times Peak Oil, as well as so the markets volition non discount such outcomes. However, an private has to innovation for the long term inside their personal financial plans, as well as so i oculus should survive kept on the subject.

If y'all desire to limited the province of affairs metaphorically, peak fossil oil is non a cliff confront that industrial culture volition autumn over, rather that it a noose that is imperceptibly tightening around its neck.

Concluding Remarks

The volume is imperfect, but it provides a goodness introduction to the dependent area piece avoiding diverse psychological pitfalls. The dependent area of Peak Oil may non look timely, but it needs to survive inwards the dorsum of the hear of fixed income analysts. In fellowship to survive bearish on bonds, y'all receive got to projection a steady multi-year tightening cycle. It remains to survive seen whether the job concern bike could concluding that long before triggering the fossil oil cost spike that would convey it to its end.

Final Note: The volume appears to survive out of print, but the updated Kindle version is available at Amazon (affiliate link to hardcover version).

(c) Brian Romanchuk 2014