Nate Hagens: We're Not Facing a Shortage of Energy, But a Longage of Expectations

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This week’s interview is one of the most important discussions we’ve had to date on energy, its supply/demand dynamics, and the tremendous impact it has on our economic and social identity. It is clear now that we are staring at a future of declining output at a time when the world is demanding an ever-increasing amount.

Nate Hagens, former editor of the respected energy blog, The Oil Drum, gives a fact-packed update on where we are on the Peak Oil timeline. But interestingly, he explains how he sees the core issue as less about the actual amount of energy available to the world and more about our assumptions about how much we really need:

"We’re not really facing a shortage of energy; we’re facing a longage of expectations. And the sooner that we as individuals or a nation recognize that the future is going to see much lower consumption than today and prepare for that, psychological resilience is going to be really important, because if no one is psychologically prepared, people are going to freak out when some of these freedoms start to go away.

Look, the average American consumes around 230,000 kilocalories a day of energy. The body itself consumes about 2,500 to 3,000 of those, endosmotically, within the body. So exosmotically, outside of the body, we consume 99% of our energy footprint. So if Peak Oil is upon us, or any issue with coal or natural gas, or the main fossil pixie dust that has subsidized our lifestyle for the last century, if that stuff declines twenty or thirty or even forty percent, it’s not like we’re literally out of calorie availability. It’s just that our system is built on all this decadence and industry and trade and cross border transfers; it has all been built on a model that can’t continue. What’s going to break first is people’s expectations of what they own, the digits in the bank, and all of the financial claims. But those are just digits, they’re abstract digits. The day that a financial system would be disrupted, nothing happens physically.

So I think if we drop our energy consumption quite a bit, nothing has to change other than our supply chains and the way that goods and medicine and water and sanitation and all that get to the cities and towns and states. That has to be deeply thought about on a national level. But I’m optimistic - if we were sitting here and the average American used 10,000 calories a day of total energy, and we needed 3,000 for our bodily functions to continue, that would be a real problem, because there wasn’t much extra. But we have a huge amount of energy relative to what we need.

So I think there are two main things that need to happen - and of course, individuals can play a role in this - but one is we need to design some sort of future system that is an accurate barometer of what we really have on our natural capital balance sheets, relative to what we really need on our human behavior balance sheets. People are working on both sides of that.

Number two is we need some sort of bridge, some sort of mitigation towards a financial currency trade disruption, which very few people are working on. The fact is that a large percentage of our economic output globally is traded: If there’s some problem with the euro or the yen or the pound or the dollar, how does that stuff continue to get shipped every day, along with all the components and everything else that we need? In my discussions, very few people are looking at that. And so on a macro level, people need to start focusing on how supply chains look and what are ways around our current system so that we can guarantee at least basic necessity-type things to continue to reach our shores and be processed, etc."

In Hagen’s opinion, successfully entering a post-Peak-Oil future necessitates a fundamental change in our social values:

“What are we driving for? What is the goal of a society and a goal of a culture? And it has been, for quite a while, profit that is supposed to trickle down. Once the assumption of growth goes away, then you have to start looking at different objectives, and that’s the gorilla in the room that people are afraid to voice. And I think if they understood the energy-economic link better, they might start to come to that conclusion.”

Also in this interview:

  • Why we've now reached the "biophysical gauntlet" where higher energy costs are handicapping future economic growth
  • The subtle yet critical relationship between debt and energy. And why our ignorance of it is worsening our collective situation.
  • The most probable implications of Peak Oil for the financial markets and asset valuations
  • What individuals (and society) should do to position for a future of lower available energy
  • Why 'self worth' is the new 'net worth'
Note: Listeners interested in the conclusions expressed within this interview will also want to read Chris' recent report on Past Peak Oil - Why Time is Now Short, which takes a deep dive into the data behind the supply and demand imbalances in the global market for oil.

 

Nate Hagens is a well-known authority on global resource depletion. Until recently, he was lead editor of The Oil Drum, one of the most popular and highly-respected websites for the analysis and discussion and global energy supplies, and the future implications of the energy decline that we are facing. Nate’s presentations address the opportunities and constraints that we face in the transition away from fossil fuels.

Nate holds a Master’s Degree in Finance from the University of Chicago and recently completed his PhD in Natural Resources at the University of Vermont. Previously, he was President of Sanctuary Asset Management and a Vice-President at the investment firm Solomon Brothers and Lehman Brothers. He is a frequently featured presenter and active participant for the Association for the Study of Peak Oil and Gas (ASPO).

 

 

This is a companion discussion topic for the original entry at https://peakprosperity.com/nate-hagens-were-not-facing-a-shortage-of-energy-but-a-longage-of-expectations-2/

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Great interview!  Your story and Nate Hagens alike are inspiring to those of us try to navigate through this complex environment.  I still cant get onboard with the inflationary outcome in the near term.  It seems to me we are more likely to suffer from several big deflationary shocks to which the fed and other central planners will respond with some fractional printing response.  The printing has not kept up with the debt deflation thus far so why do you think it will keep up going forward?  We’ve already begun to see the defaults happening here in the US up near you in RI, as well as Greece and the best example Iceland.  Is it not likely that more of this will follow?  Will those in default not liquidate all assets to pay?   If these defaults trigger CDS obligations that cannot be paid, that is deflationary.
I’d like to see you interview a staunch deflationist to debate the merits of both sides of the equation.  It seemed from the interview that Hagens was leaning toward deflation.  Perhaps you could have a follow up to dig into that a bit more.

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This discussion is an excellent jumping off point to meaningful discussion about where we want to go as individuals and as a society. Contrary to prevailing "wisdom," the structure of the way we work and live(the "system") has been debilitating.
To my mind, at this point, it all comes down to who we want to be surrounded with community-wise. I want to be surrounded by people who are into research (as in re-search) and Chris and Nate fall solidly into this category.

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Chris I just wanted to thank you yet again.
You opened my mind to the matrix several years ago, and you continue to add great value everyday.

 

Thank you

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Thanks for the interview, that was great. I have a comment / observation regarding a concept that was talked about throughout the interview but mostly at the end, the idea that in the near future people will soon, over the next year or few, begin to fully accept that we can’t go on like this, that our current way of life is an illusion, as was mentioned, that “the greatest threat to the American way of life is the American way of life”, and that instead we can all accept that we can get by with less and yet be even more fulfilled as we were before. Nate says, “things could be probably a lot better than we fear.”

I hope that is what happens but I have my reservations and concerns. When I look to the MSM I do not see this happening (maybe I shouldn’t be looking there…) This is backed up by opinions I encounter from people I interact with daily – that being a complete denial of what is happening, and beyond this, an unwillingness to understand the underlying issues going on. Instead, what I see is a level of hysteria and frenzy being whipped up by the media, preying on peoples’ fears of losing their way of life, but not addressing the underlying causes. Our economic problems are a result of ... not taking enough energy out of the ground, apparently, rather than we are taking too much and that we are wasting it. Even within the narrower realm of Contrarian Economists, the majority still don’t see the problem in its underlying form – a clash between an economic system that requires perpetual growth and the real world that cannot do so. Instead, what we see is economic analysts blaming government overspending, or people taking on too much debt, for the problems, when this is merely a symptom, not the cause of the problem.

I am continually amazed by the power of the human mind to deny what is blatantly obvious. Rather than admit that everyone is in part to blame, including ourselves, I see people either 1) completely denying that a problem exists, or 2) if they do admit it, they instead single out particular political groups, or even invent imaginary ones, as scapegoats to shift blame onto someone else (of course, I too am to blame because I drove a gas guzzler for a few years). One person I work with, an aging guy with health problems, both his own and his parents’, and no kids to help support him, who owns no house and has his net worth parked in mutual funds and is therefore justifiably concerned, repeatedly blames “the socialists” several times a day for everything that ails society, everything from the transit line moving a bus stop, to the global stock market problems.

I see a media that is taking advantage of this fear and using it to whip up people into a frenzy of blame and anger. When everyone actually does have to come to terms with losing 80% of their net worth, along with their life dreams, is it reasonable to assume that they will deal with it in the mature way that Nate, Chris and pretty much everyone else on this site does? Or will that instead be vented in a different way? I see this as a very dangerous situation that we should be preparing for, as in, a possible worst case outcome.

The Oil Drum and CM have both previously talked about how complex systems (eg, societies) require excess energy to maintain that complexity (“Abundant Net Surplus Energy”). When this disappears, the system simplifies. How specifically will our society “simplify”? Will it take the mature approach as outlined here, or will political opportunists take advantage of it to further their extreme political or religious ideologies, or use it to justify large (ie worldwide) wars against other countries and cultures that are different than us? Already here in Canada, we see the federal government (which now holds a majority control) suppressing science and muzzling all scientists in the various departments (they are no longer allowed to speak to the media).

Critics of the idea of Limits to Growth and Malthusian Collapse scenarios point out that technology has always saved us, that we have never really had a significant Malthusian event (I have noticed that the people who have the greatest faith in the ability of technology to save us also tend to have the poorest understanding of how science and technology actually work). But this line of reasoning is flawed because, once you experience a Malthusian event, it’s too late!, And I think most on this site would agree that we are currently undergoing a Malthusian Collapse (brought about by diminishing fossil fuel supplies which have, until this point, enabled us to greatly extend ourselves as a species to well beyond what a natural population dynamic could support), and that this collapse is being masked by all the financial bubbles being propped up by central banks.

And we do have examples of a Malthusian collapse – Somalia and Haiti. Haiti’s situation has been made worse by the earthquake, but even before this, it had major problems. It can be argued that the breakdown in social order in Haiti has been brought about by an overconsumption of its limited natural resources. How is this any different from the entire world under the constraints of Peak Oil? To anyone who has the information to enlighten me, have Haiti’s citizens taken the mature approach as explained here, and admitted that they must live a more frugal and friendly lifestyle? I don’t know, that’s not the picture I get from the media, but admittedly this could be a highly skewed portrayal.

 
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I think this is one of the most frank and insightful discussions I’ve ever come across on these topics.  I’m especially impressed with Nate Hagens.  I knew of him, of course, from the Oil Drum, but I’ve never heard him speak.
I resonated deeply with his perspective.  In fact, one of the reasons I stopped posting regularly here was similar to the reason he gave for discontinuing his public speaking on these topics.  I realized that A) human beings are evolutionary wired for prioritizing short-term priorities over long-term needs, and B) even if the majority of people realized what is happening and accepte it, they would be unable to take meaninful steps to do anything about it.

There’s a lot of discussion around here about making preparations… planting a garden, buying gold and silver, installing solar panels, etc…  That’s all well and good, and I’ve done some of those things myself.  But what is rarely acknowledged (and I believe what Nate was hinting at, but didn’t explicitly say) in these discussion is how issues of privilege and class figure into an individual or family’s ability to adapt to the coming times.

I don’t have any statistics to back this up, but I’d be willing to bet that most of the folks on this board are upper-middle class.  Many, like Chris, have left successful careers behind and have (what most would consider) a lot of money in the bank, connections and resources.  They’re highly educated, have analytical minds and have access to others socially and professionally with similar resources and capabilities.

Most of the steps discussed on these and other similar forums are geared toward this demographic.  Buying solar panels, for example, assumes that A) one is a homeowner, B) they have enough liquid capital to invest in the panels, and C) they believe they’ll continue to be able to pay their mortgage or their house is already paid off.  We’ve just eliminated a large majority of the American population with those three prerequisities.  

As anyone who’s done any gardening will tell you, good luck with growing a substantial portion of your own food - unless you live on 5-10 acres in the country, and even then, you better be able to do it almost full time or have help - both of which assume you’re either not working (and have money saved up), or you are working and have money to pay people, or your husband, wife or partner isn’t working and is running that show.  Again, in this paragraph we’ve eliminated the vast majority of the American population.

The cold, hard truth is this: most people will not accept the coming crisis until it’s upon them, and even if they did, they lack the resources and education to take appropriate action.  

I am somewhere in between, myself.  I have the education, I’ve long ago accepted what’s coming, and I have some limited resources.  But I do not own a house (and can’t afford to buy one, even if I wanted to in this market) and thus most of what is recommended here in terms of preparations (garden, solar, greywater, etc.) is pointless.  I’ve also realized that doing those things in an urban area without building strong community relationships and support is also useless, because there’s little stopping my neighbors from helping themselves to my garden when/if they get hungry enough.

What I can do is what I have done (and had done long before I even became aware of the Three Es, mostly for my own personal/spiritual reasons): focus on the things in life that truly bring joy and happiness, live with less, prepare psychologically for difficult times (glad to see Chris address that in a recent issue), build communication and conflict resolution skills, and practice enjoying each moment as it comes.  

I believe all of those intangible capacities are every bit as important as the tangible preparations for two important reasons: 1) because as Nate said, no one can predict exactly how things are going to play out.  No matter how prepared you think you are, you can never fully prepare for a change this paradigmatic.  Why?  Because we’re preparing for a new paradigm through the lens of the old paradigm; and, 2) because no matter how hard we try, we’ll never have full control over the circumstances of our lives.  This is one of the greatest illusions of the human experience.

In my spiritual tradition, there’s a recognition that happiness does not come from changing the circumstances of our lives.  It comes from accepting them as they are.  I think that simple truth, more than any other, can help us to whether the coming storm.

Chris

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You’ve brought up a subject that I have thought about, but don’t have many good answers.  I am somewhere in the above middle of your range.  I own my own home with enough land to do pretty much anything in terms of permaculture projects.  I’m getting solar panels installed and own some PMs.  The reason I can afford these things is that I’ve saved and minimally invested most of my adult life, and I’m approaching what would normally be considered retirement age.  So, I am not some overprivileged refugee from the fast track.
This would be a good time and thread to discuss what we can do to plan for those who don’t have our resources.  I’ve offered my land for a community garden, but in an area where everyone has room for a garden, its not a great offering and I’ve had no takers.  I’ve also been in touch with the head of our local food bank to hopefully interest her in the concepts presented on this site with no or little response.  I’ve made it clear to family members, who are definitely unaware and don’t have the resources to do much if they were, that they can have a refuge here if things get that bad.  Again, no interest.  We are buying bulk foods from a LDS cannery that we will share if need be.  I cut and split my own firewood and have a couple years worth stored.  I would have to be sorely moved to part with any of that, but most people around here have chain saws and splitters anyway.  We also contribute to a few charities aimed at assisting less privileged folks.

Beyond these measures, I don’t have a lot of good ideas and I don’t have a lot of "surplus" money to give out to others.  The way I figure it, if things get really bad, I will probably run through our resources fairly quickly.

The conclusion I’ve come to is that there is probably little I can do in terms of preparations to help others out, but am fairly confident that if tshtf, there will be lots of willing hands to work for whatever I can still share.  Beyond that, I don’t have much to offer.  But, if others have suggestions, I’m all ears.

Doug

 

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Good,
Thanks Nate and  Chris.

I wonder how many of us migrated from the Oil Drum to here?

Let us examine any suspect assumptions. Just to ensure that the foundations of our model is correct.

The first is that humans now and in the future will be the same. I think that our plastic brains will respond to the use to which we put them. For instance if I spend all my time thinking about money, then my brain becomes re-wired around the money meme.

Evolutionary change is a function of time and pressure. And it is goal-less. If small brained, aggressive males are more successful at breeding young and fast then that is what we might expect.

Naturely I would prefer it if we went in the dirrection of Professor Brian Cox.

In fact I would insist on it.

The second assumption that is implicit is that we only have our own minds to work on our predicament. That leads us to think that democracy is the best decision making process because it produces a synthesis of minds. Look at the fruits of that tree. Are they not rotten?

What we need is a good set of desireable goals and an evolutionary program to target those goals. I see the pieces of the puzzle coming together. and I would keep an eye on Quantum Computing with regard to its access to the Sum-over-Histories.

What would such a system recommend? We don’t know. That is why we build it.

How would we judge worthy goals?

Phaedrus addresses the issue of Quality in Zen and the Art of Motorcycle Maintenance. Quality is not  "just" what you like. It is a seperate entity. It is the third entity in the holy trinity. Subject, Object and Quality. We will recognise it with our Right Hemispheres when we see it.

 

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Anyone who posts Dr. Brian Cox & Zen in the same post gets bonus points from me.  Saludos, Jo
 

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Not sure that inflation or deflation are completely meaningful terms anymore for the governments motivations, energy and natural resource depletion, and our unsustainable debt in this historically unique situation. As mentioned in Chris’ interview with John Rubino and discussed by many others, the dollar could dramatically collapse for a number of reasons only one being the  (never admitted) government strategy to manage our unpayable debt. Problem is, as Hagens points out, most of our ecomoic paradigms presume everything else being equal which is far from the truth. My instinct (and it is only an instinct) is that the dollar will dramatically collapse at a rate far from control of those trying to manipulate it now. This will bring some form of hyper inflation and destruction of our currency and many others.        

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 Thanks for a great interview!

 
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I too am a member of modest means.  Still, the effort I’ve put toward starting community permaculture gardens, learning beekeeping and moving savings into PMs has been worth while and meaningful.  You are right that many here have access to more resources, however, even those of us with few resources can and do benefit from this site.  Certainly the recent emphasis on internal preparation is an excellent example of benefit that is not connected to wealth or resources.   hugs … dons

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 dps,
I’m not debating the importance of making preparations as you’ve described, but I am suggesting that for most people with limited resources they’re not likely to provide a significant amount of insulation against the coming shock.  
That’s fine, because making those changes (starting a community garden, learning beekeeping, investing in PMs, etc.) have psychological and intangible benefits that I would argue are greater than their ostensible material benefits. 
Nor am I critizing this site or community.  I have tremendous respect for Chris’s work and for many of the people here.  I’m simply drawing attention to the issues of privilege and class, which are often left out of this discussion, and reiterating Nate’s statement that it’s impossible to fully prepare for an unpredictable future.
Carry on!

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What to do with little means?..get inspired by what can be done with little means.
Last night I watched some interviews with the real Rugby Team/Andes Mountain/Plane Crash survivors[chronicled in the movie ALIVE(1993)]. The human spirit lives!..do not underestimate the will to live!

http://www.youtube.com/watch?v=jLu1Ol7nZTA

 

 

I lost my home, have limited income, etc…

I have been trying to see the things I wish I had as a pity, instead of a problem.

Some things just don’t work out. I want a garden/land soooo bad…I don’t have the money, land, soil, or seeds.

My daughter helped plant/weed a friend’s grandmother’s garden and we will get some of the harvest.

Today, I saw and online ad for free zuchinni in my area…called…she said she will also have some extra tomatoes and green peppers!

Wild foods I have in my yard(renting) or I have found growing in abundance in the local mountains: sage, clover, dandelion, purslane, catnip, mint, yarrow(for tea), watercress, raspberries, and thistle(leaves have sharp spikes/leaves need to be boiled in several changes of water before they can be eaten).

Asparagus can also be found growing wild…still looking.

Everytime, I pick a raspberry I say, thank you(outloud). I practice saying thank you each time I pick, or consume, any food. I have also been learning about fermented foods, which are nutrient dense. I made some sauerkraut…great project for small budgets.

Sprouts are another way to grow fresh food, fast, with limited space and resources.

I carefully assess what I buy and I do not discard useful material I already paid for. Like saving jars and bottles to store other items. 

I even save lighters that have no fluid because the flint/spark still works.

 

 

-littleone

 

 

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Thanks for another great interview (with a Wisconsinite, hi Nate!).
I’d like to suggest Dmitri Orlov for a future guest.  I saw a video clip that was linked to his "Club Orlov" blog in which he mocked people for investing in gold.  His point was that peak oil will make everybody poorer.  I think that Nate made a more nuanced or accurate statement in the interview above when he said he esimates 70 to 90 % of all wealth will evaporate or be deflated/(inflated) away.  (I’m invested in gold myself, not to "get rich," but rather to avoid losing all or most of my savings.)

If you could get Orlov to be serious, he might also say things that are accurate, specific, and helpful.

Jeff  

 

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this is spot on. problems in energy will manifest economically, growth has been the goal of every other civilization through out history. 7 billion is already too much, ecosystems are straining under the weight . we need a new goal instead of bigger we need better ,we need to regulate are own growth cooperatively world wide. . we are the only species that ever had a chance to do this because we can think critically. if we could do this the human race would have truly taken hold of its destiny. this is no small task. if we cannot regulate our own numbers war famine and pestilence will do it as they are tasked by nature.
to bring the general public to the level of understanding expressed in this interview  seems vital but  a huge task. most are not real consious  of the current narrative (growth)  and to introduce them to the narritive of the end of that . . .well difficult. the worlds nations are locked in to economic compitition.for them to stop that willfully and start cooperating for different goals  . . .thats what is needed but unfortunatly i dont think its real high on odds sheet.

 
 
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Dmitri has been invited several times to be an interview guest, but has declined our outreach to date.If he ever changes his mind, he’s welcome here. 

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I read the Dmitri blog on the translation to "clueless" of the EU banker’s comment about Bernank.  But that EU man is the third type of incompetent.  
Things are coming into view for me after reading this interveiw.  I always questioned the assumption of 3-4% GDP  growth and borrowing from the future to pay present bills.  It was some (24) years ago that a PHD chinese economist laughed at my undergraduate question about how the US funds its daily business by always borrowing from the future.   I wonder what he thinks now.

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Thanks for the excellent article. Can you give me a reference for the Templeton article on housing you mention please?
If ‘digital wealth’ is heading for a hammering, then is now the time for anyone who doesn’t own their own property to prioritise buying one? Particularly if you are happy to buy in a relatively cheap area where you won’t need to take on much debt to do so. A roof over your families head is a tangible asset at least…

Thanks

Seadog

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Please don’t take this pretty-boy, long-hair, elitist at face value.  Sure he’s got some good points, but he thinks God has called upon him to repeal the laws of economics and "reduce our freedom" (his words).  We’ve heard this c___ before (anyone remember "Limits to Growth" and the "Club of Rome"? whatever the h___ that was).  Hey Mr. Privileged Long-hair:  how about natural gas?  At the rate they are finding it, we could end up drowning in the stuff.
Furthermore,  don’t fall for this EReOI stuff:  it’s the FORM of enegy that counts.   Electricity has been a negative EReOI deal from the beginning: coal-to-electricity. Big Deal.  Yeah we’ve got some problems,  they are all caused by government, or will be because of the stupid things they end up doing at the behest of people like Nate Hagans.   "Hey Nate! Please read Adam Smith before you start dictating what our ‘cultural goals’ should be."
[Note the disgustingly casual use of the royal "we".]
[Moderator’s note: This post does not meet our standards for helpful, constructive, fact-based commentary.]