Peak Industrial Output and the Limits to Growth as a Consequence of Depleting Natural Resources and Appendices (ACME) v2

Peak Industrial Output and the Limits to Growth as a Consequence of Depleting Natural Resources The permanent divergence of the real economy and the fiat economy

Dr Simon Michaux 18th August 2017

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This report was generated from part of a larger and ongoing study by Dr. Simon Michaux for ACME Corporation in response to attending a meeting of the Steering Committee of ACME Industrial Operations & Support division in the town of Huy, Belgium on Monday, June 19, 2017. In that meeting a discussion was conducted regarding a decision to be made with what to do with some of ACME assets in Germany.

Glossary of Terms

1.0 Introduction & Synopsis

Appendix A – Waste Incineration in Europe

2.0 Waste generation in Europe

Appendix B – Description of Different Energy Resources

3.0 Energy Consumption in Europe Appendix C - The Use and Application of Energy Resources in Europe

Executive Summary

4.0 Stagnation of European Industrial Output and the Real Economy 5.0 Structural Changes in the Industrial Business Environment

Appendix D – ERoEI Comparison of Energy Resources

6.0 Conventional Mining of Metals has Fundamentally Changed

Appendix E – Quantity of Energy at Point of Application for Energy Resources

7.0 Energy is the Master Resource 8.0 The Implied Change in the Industrial Paradigm

Appendix F - Depletion of Oil Resources and Peak Oil

9.0 The Response of the Central Banker Administrations

Appendix G – Depletion and Project Reserves of Gas, Coal, Uranium and Phosphorous Resources

10.0 Prognosis

Appendix H – Structural Vulnerability of the Financial System & the Printing Money Strategy

11.0 Recommendations

References

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Executive Summary Synopsis ACME has 68 incinerator process plants in Germany. One of the products from these process plants is an energy fuel oil. Demand for energy in general in Europe has been declining. There is a prediction that there will be an energy supply surplus in or around the year 2020 (due to increased production of oil & gas). If this happens, the value proposition of running these incineration plants would be reduced. Should ACME Corporation decommission and asset strip some or all of the fleet of incinerators in Germany?

Influencing and relevant aspects to consider The real economy (that produces physical goods and services as opposed to financial digital assets) contracted sharply in 2008 during the Global Financial Crisis (GFC) and has never fully recovered. Instead industrial output has stagnated. Also, in the period 2007 to 2012, EU-28 consumption of natural resources contracted 18.4% This means that the 13.5% per capita drop in EU-28 energy use between 2006 and 2015 was not due to an unprecedented achievement of efficiency, rather a signature that the real economy is undergoing structural change. The economic stagnation seen both globally and in Europe has been persistent for much longer than conventional economic models allow for (suggesting they are now irrelevant). There are no accepted useful economic models that predict low commodity prices (including energy) at the same time as a long period of resource demand destruction during persistent economic stagnation. The conventional mining of raw materials underwent a structural change in productivity in 2001. In 2005, there was a non-linear blowout in metal price (Pb, Ag, Ni, Au, Cu, Zn, Al and Fe ore). Since then that non-linear volatility has been persistent after the largest economic correction since the Great Depression, which suggests the fundamental causes of the blowout are still influential. The modern society is a petroleum driven economy. Oil consumption and oil price have proven to be excellent proxies for many aspects of industrial activity and society functions (for example food price). Energy is the underpinning resource that facilitates the capacity to do useful physical work. Oil in particular has proven to be the master resource. A case is made in this report that energy resource (mostly finite non-renewable natural resources) are only a few years away from peaking in production and depleting (thus unable to meet market demand for consumption). Oil production in particular may have peaked a few years ago, or will do so in a few very short years. Currently there is no credible replacement for oil that can deliver that quantity of energy to the point of application, or has such a high ERoEI ratio (Energy Returned on Energy Invested). Both Nuclear power and renewable energy have their place, but are not the answer to this conundrum. In conjunction to this, current financial monetary systems are extraordinarily fragile, overleveraged and now saturated with debt. This state of affairs has its origins in unfortunate strategic decisions made decades ago. To survive, this system must grow in size so existing debt can be serviced. Current status is that all fiat currencies around the world are nearly completely debased in terms of purchasing power (the $USD lost 97% purchasing power between 1913 to 2016). The money system now cannot sustain even a small setback in public confidence without complete fragmentation. The circumstances that lead up to the GFC (inelastic energy supply in the form of conventional crude oil in 2005) forced the real economy and the fiat economy (financial instruments and digital assets) to permanently diverge. To contain the GFC and arrest the haemorrhaging of market value, an unprecedented volume of money was created through quantitative easing (QE). If the GFC severe economic downturn continued, society at large would understand that this system is virtual and has literally nothing really holding it together beyond the public perception that all is well. Once it happens that the public understand that the real economy has reached peak industrial output, public confidence is destroyed and the system becomes paralyzed into irrelevance. The hope behind the QE strategy was to give the real economy time to resolve its issues and start to grow again. This did not happen. In 2013 peak global energy consumption per capita was reached. In 2014, peak global GDP was reached. In 2016, the Baltic Dry index crashed to a historical low. The real economy has peaked in production and is now contracting due to underlying difficulties associated with the oil price and cost of energy in general. 3

Prognosis Our industrial society is following the patterns of consumption shown from the 1972 Limits to Growth base case scenario. In context of this scenario, we have reached or just passed peak industrial production (per captia). This model predicts a peak in services to society (per capita) a few years later, followed by a peak in food production (per capita). There is a compelling case that many of the finite nonrenewable natural resources our industrial society depends upon have hit practical extraction limits and are now depleting. While energy is the master resource, and where the difficulties in energy resource production have defined the timing of this peak in industrial output, it certainly is not the only resource in a supply risk circumstance. That being stated, the flash point will probably be the price of oil, where if it’s too low, oil exploration is not economically viable, and if it’s too high, economic growth is not viable. Systemic debt saturation of all entities around the world facing these challenges make a certain outcome mathematically inevitable. Our monetary systems are not in a fit state to engage in fundamental industrial reform. An unprecedented severe economic downturn in the form of a global bond crisis, followed by a systemic debt default is now mathematically inevitable. Moreover, due to the centralized nature of its operational control, the monetary system fragility and its virtual nature implies a period of paralysis would be inflicted onto the real economy, at a time when the real economy really needs to evolve in a comparative step change. The debt saturation point of the US and EU has almost been reached. Further QE will not achieve anything useful. It is clear that political and economic leadership have no Plan B beyond more QE at unprecedented levels. This point where our industrial system hit the ‘soft’ limits to growth (where logistics get more difficult) has been a time period of transition that has been in progress since the year 2000. This report documents 38 data signatures that signal structural change is happening in 5 temporal marker clusters.

Recommendations Once it is understood that structural change is in progress and a step change is immanent, intelligent response can be formed. ACME processes and recycles waste. As this is a vital function to society, it will always be needed regardless of circumstance. The implications of the challenges presented in this report mean our industrial society will require rebuilding and retooling, which will need an unprecedented quantity of metals and minerals. Sourcing these minerals will become logistical very difficult, making recycled raw materials much more valuable. A number of strategic recommendations have been made in this report for ACME management to consider. They include a series of risk mitigation strategies and preparation to take advantage of unique strategic opportunities that ACME has (where almost all other corporations do not have). Strategies include, making ACME more resilient in times of logistical stress, and more capable of producing products that will be needed (inelastic demand of). It also recommended not decommissioning the incinerators in Germany.

Dr. Simon Michaux 18th August, 2017

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Table of Contents 1.0

Introduction 1.1 1.2

Synopsis Contributing influences and relevant aspects to consider

2.0

Waste generation in Europe

3.0

Energy Consumption in Europe

4.0

Stagnation of European Industrial Output and the Real Economy

5.0

Structural Changes in the Industrial Business Environment

6.0

Conventional Mining of Metals has Fundamentally Changed

7.0

Energy is the Master Resource 7.1 7.2 7.3 7.4

8.0

The Implied Change in the Industrial Paradigm 8.1 8.2 8.3

9.0

Exponential growth in a finite system Limits to Growth for Metal Mining Limits to Growth for Energy 8.3.1 Oil 8.3.2 Natural Gas 8.3.3 Coal 8.3.4 Uranium and Nuclear Power

The Response of the Central Banker Administrations 9.1 9.2 9.3 9.4 9.5

10.0

What would be required from other energy sources if oil was phased out Oil consumption and industrial output Energy consumption and industrial agriculture Energy and population growth

Quantitative Easing Deteriorating Purchasing Power of Currencies European Debt Crisis Rising Wealth Inequality Divergence of the Real Economy and the Fiat Economy

Prognosis 10.1 10.2 10.3 10.4

10.5

10.6 10.7

Energy Prognosis The Real Economy Prognosis Finance and the fiat Economy Prognosis Just-In-Time Supply-Chain Failure & Repair 10.4.1 Natural disasters, blockading truckers, and the connectedness of things. 10.4.2 Reverse economies of scale in critical infrastructure Geopolitics Prognosis 10.5.1 Political and Big Business Knowledge of Peak Oil 10.5.2 Geopolitical Probable Outcome The Big Picture Temporal Markers that Diagnose at What Stage of the Transformation is Happening Now

11.0

Recommendations for ACME Corporation

12.0

Future Work

13.0

References i

14.0

Glossary of Terms

Appendix A: Waste Incineration in Europe A1 A2

Energy Recovery from Waste Treatment Emerging Technologies of Incineration

Appendix B – Description of Different Energy Resources B1

B2

B3

B4 B5

Oil and Petroleum Products B1.1 Use of oil and petroleum products B1.2 Conventional oil production B1.3 Oil Refining’s Basic Steps B1.4 Unconventional oil production Gas B2.1 Use of gas and gas products B2.2 Conventional gas production B2.3 Unconventional natural gas production Coal B3.1 Use of coal in power generation B3.2 Coal production Nuclear Power and Uranium Renewable Power B5.1 Use renewable power sources to generate electricity B5.2 Renewable Electricity Generation

Appendix C – The Use and Application of Energy Resources in Europe C1 C2 C3 C4 C5

Use of petroleum products in Europe Use of gas in Europe Use of coal in Europe Applications and use of renewable energy in Europe Use of fossil fuels to make plastics

Appendix D - ERoEI Comparison of Energy Resources D1 D2

D3

The Oil Industry as an ERoEI Example The Net Energy Cliff D2.1 Energy Inputs to ERoEI D2.2 Energy Outputs of ERoEI D2.3 Using Energy Proxies ERoEI of Energy Resources

Appendix E – Quantity of Energy at Point of Application for Energy Resources Appendix F - Depletion of Oil Resources and Peak Oil F1 F2 F3 F4 F5 F6 F7 F8

Political and Big Business Knowledge of Peak Oil Oil Production Oil Resource Discovery Status of Existing Oil Reserves Shale Oil (Tight Oil) Oil Industry Investment Rising Cost of Oil Production Peak Oil

Appendix G – Depletion and Project Reserves of Gas, Coal, Uranium and Phosphorous Resources G1 G2 G3 G4

Natural Gas Coal Uranium and Nuclear Power Phosphorous ii

Appendix H – Structural Vulnerability of the Financial System & the Printing Money Strategy H1 H2 H3 H4 H5 H6 H7 H8

What is Money? History of the US Financial system and the US Federal Reserve Bank Monetary Creation and the Fractional Reserve Banking System Monetary Creation, Debt Creation Quantitative Easing and the Printing of Money Consequences: Inflation, Hyperinflation, Deflation and Stagflation Recent Examples of Inflation and Historical Examples of Hyperinflation Derivatives

List of Figures Figure 1. European municipal waste generation and treatment 1995-2013 Figure 2. Energy consumption of Europe EU- 28 nation states 1990-2015 Figure 3. Energy Consumption of Europe EU- 28 nation states for the year 2015 Figure 4. Energy consumption by type in year 1990 for EU- 28 nation states Figure 5. Energy consumption by type in year 2006 for EU- 28 nation states Figure 6. Energy consumption by type in year 2015 for EU- 28 nation states Figure 7. Dependency on coal, oil and gas for energy source EU- 28 nation states Figure 8. Energy Consumption of Europe EU- 28 nation states for the year 2015 Figure 9. Population Growth in the EU-28 states of Europe Figure 10. Energy Consumption per captia of Europe EU- 28 nation states Figure 11. US and Eurozone Industrial Production Index and MIGs Figure 12. Raw material consumption per capita EU-28 Figure 13. US and Eurozone Industrial Production Index Figure 14. Europe Area EU-19 Figure 15. Chart showing the crash in the Dow Jones Industrial average during the GFC Figure 16. Global Foreign Direct Investments (FDI) Figure 17. Conventional crude oil has passed the tipping point for easy extraction Figure 18. World Crude & Lease Condensate Production excluding Canada Oil Sands (million barrels a day) Figure 19. Conventional crude oil supply and demand did separate 2005-2008 Figure 20. Crude Oil Prices - 70 Year Historical Chart Figure 21. The Baltic Dry Index Figure 22. The Baltic Dry Index (Log Scale) Figure 23. The price of metals indexed to the year 2000-01 and number 100 Figure 24. Caterpillar World retail Sales YOY Change iii

Figure 25. Mining investment in Australian mining industry Figure 26. Australia: Business investment & recessions (Bus. Inv. S % of GDP, 2016 prices) Figure. 27 World Bank Energy (oil, natural gas, and coal) and Base Metals price Commodity price indices, using 2005 US dollars, indexed to 2010 = 100. Base metals exclude iron. Figure 28. The Australian Mining Multifactor Productivity Index Figure 29. Gold mining costs in Australia 2000-2009 Figure. 30 Relationship between raw materials and finished manufactured goods Figure 31. A simplified flow physical flows that sustain our productive system Figure 32. World GDP in constant dollars (vertical axis) plotted against the world energy consumption in million tonnes oil equivalent (horizontal axis), from 1965 to 2014. Figure 33. Correlation between global GDP, global energy consumption and global oil consumption Figure 34. Oil pumping jacks operating 24hr/day in Texas USA Figure 35. Current industrial society is a petroleum driven economy Figure 36. Chinese industrial output (YoY) and the (%) change in Brent Crude oil price. Figure 37. Chinese industrial consumption compared to the rest of the world in 2008. Steel production (LHS) and cement/concrete production (RHS) Figure 38. Chinese consumption of natural resources as a fraction of global consumption Figure 39. China’s oil production surplus and deficit, 1980-2011 Figure 40. Industrial agriculture farming modelled as a system Figure 41. Industrial agriculture farming modelled as a system Figure 42. Competition between biofuels and food for arable land use Figure 43. FAQ Food Index and incidence of civil unrest Figure 44. Major outbreaks of rioting in England (red lines) correlate with average price of wheat between 1780- 1822. (Source: Johnson 2011 & Figure using data from Archer (2000) Figure 45. World population, per capita-, and total energy consumption by fuel as a percentage of 2011 consumption, 1850-2011 Figure 46. Per capita consumption of various fuels Figure 47. Per Capita Consumption of Various Fuels Figure 48. Average growth per capita consumption of energy Figure 49. The base case projected outcome of 1972 systems analysis modelling of global industrial society, overlaid with observed global data from 1970 -2000. Figure 50. Feedback loops of population, capital, services and resources from the modelling procedures used in Limits to Growths systems analysis Figure 51. Comparing ‘Limited to Growth’ scenarios to observed global data Figure 52. World GDP in “Current US Dollars,” (calculated on 15/08/2017) Figure 53. The estimated growth of the human population from 10,000 BCE–2000 CE. iv

Figure 54. Exponential growth of consumption of a finite resource Figure 55. Planet Earth, a finite dynamically adjusting stable system Figure 56. The resource pyramid conundrum Figure 57. Grade of mined minerals has been decreasing Figure 58. Metals and minerals raw material manufacturing landfill cycle Figure 59. Historical sources of phosphorus fertilizer Figure 60. (a2) Static: Best Estimate Figure 61. Metals and minerals raw material manufacturing landfill cycle Figure 62. Metals and minerals raw material manufacturing landfill cycle Figure 63 World energy consumption forecast by economic development and fuel, 2010-2035 Figure 64. World primary energy consumption by region and fuel, 1965-2011 Figure 65. World oil production forecast, 2011-2035 (IEA New Polices Scenario 2012) Figure 66. Estimated vehicle miles driven on all roads in United States Figure 67. Weekly U.S. Net Imports of Crude Oil and Petroleum Products Figure 68. Index of US vehicle miles driven and oil consumption (1970=100) Figure 69. Estimated ERoEI ratios for energy resources on the Net Energy Cliff chart Figure 70. Global ERoEI of Oil (1860-2012) Figure 71. Global ERoEI of Gas (1890-2012) Figure 72. Global ERoEI of Total Fossil Energy (1800-2012) Figure 73. Industrial Revolutions IR1, IR2 and IR3 Figure 74. The productivity of the third industrial revolution thus peaked around 2004 Figure 75. Global production and consumption of oil by region, 1965-2011 Figure 76. World Liquids Production (conventional & unconventional) Figure 77. Conventional oil discovery 1949-2015 Figure 78. Net difference between annual world oil reserves additions and annual consumption Figure 79. Oil producing countries past their peak Figure 80. US crude oil production million barrels per day Figure 81. Global drilling of oil wells Figure 82. The pyramid of oil and gas resource volume versus resource quality Figure 83. Mitigation crash programs started at the time of world oil peaking: A significant supply shortfall occurs over the forecast period. Figure 84. Delayed wedge approximation for various mitigation options Figure 85. World natural gas production and consumption, 1965 – 2011 Figure 86. Natural gas discoveries by decade v

Figure 87. Global natural gas reserves EWG scenario Figure 88. OECD Europe supply from natural gas reserves EWG scenario Figure 89. World hard coal production 1960-2100 by region Figure 90. World coal production by coal rank Figure 91. Reasonably assured and inferred resources and cumulative uranium production of the most productive countries Figure 92. Required construction starts of new power plants to meet NEA forecast of nuclear capacity and to sustain current level Figure 93. Historical uranium production and projection until 2100 with mine-by-mine production profiles based on Reasonably Assured Resources