A noted opinionator for Forbes Magazine, James Gruber, has had an epiphany about the renaissance of the oil bidness in America, and suddenly sounds like a contributor to The Daily Impact. Gruber runs an investment newsletter, Asia Confidential, and has been a fund manager and stock analyst in Asia for 13 years. He’s at least a Deputy Assistant Master of the Universe, and sings in that choir. Or he did. Now that he has concluded, and written in Forbes, that “the era of cheap energy is over,” and “shale boosters are charlatans,” he may be booted off the island.
It turns out that Mr. Gruber read a book. Not my book, Brace for Impact, which might have had a similar effect, but Tim Morgan’s Life After Growth. The book apparently helped Mr. Gruber, who is after all a money guy, to realize that money is not the driver of any economy, it’s just the marker that shows who’s winning and who’s losing at the moment. The driver of all industrial economies, Mr. Morgan apparently taught Mr. Gruber, is cheap oil. And cheap oil is gone.
This is apparent enough when you value oil with dollars — what got Mr. Gruber into this was wondering why oil prices did not go down after the advent of the American “bonanza” — but is even more apparent when you use the more valuable measure of “energy return on energy investment (or EROEI).” Since it’s really energy that drives the economy, it really matters how much energy it takes to get your energy. Because you only get to use what’s left over.
The EROEI on oil found in the 1930s was around 100:1 — you put a unit of energy into production, you got 100 units back. Today the average is 17:1 and going down. Shale oil and gas that has to be fracked has a ratio of 5:1 and tar sands, that other beacon of hope for business-as-usual, yield 3:1. When you consider that fracking shale and boiling tar are frightfully expensive to do, and return only scant rewards, you understand (at least Mr. Gruber does, now) why cheap oil is gone, and gone forever.
The implication, since energy is the economy, is that the economy is also gone. Mr. Morgan gets this, saying in his book, “the economy, as we have known it for two centuries, will cease to be viable at some point within the next ten years or so.” Know the other way to spell that? C-R-A-S-H.
(Even then, even he, feels compelled to add the brain-dead qualifier: “unless, of course, some way is found to reverse the trend.” Yes, it looks like the Titanic will be under water completely in about 15 minutes. Unless, of course, some way is found to get all the water out. And repair the hull.)
Mr. Gruber gets it, quotes it in his Forbes piece, but he cannot accept it. When he gets to the unavoidable implication, weasel words begin to sprout in his prose. “I don’t have total buy-in…” “Proof is seemingly all around us…” Seemingly? What the hell is “seemingly?” Is it there or isn’t it? It’s a yes or no question, not a seemingly question.
Then Mr. Gruber gets back into his comfort zone by advising us that, since famine seems inevitable, we should invest in fertilizer companies and agricultural companies.
Good to know what we have to do to save ourselves.