THE CELTIC FOX CAN OUTSMART THE TIGER
The National Asset Management Agency’s flawed plan.
A debate rages regarding the Government’s plans to stimulate the economy by taking on a massive amount of debt, premised on the assumption that the economy, and especially property prices, will recover over the next few years to provide the essential collateral.
Ireland is not alone in facing the recent economic collapse as banks failed around the world, especially in the United States. This is widely attributed to no more than corporate misjudgement and inadequate Government regulation as banks lent more than they had on deposit, confident that Tomorrow’s Economic Expansion was collateral for To-day’s Debt. It is widely seen to be a temporary setback that conventional economic processes can remedy, but such a view fails to grasp an important underlying factor, namely so-called Peak Oil.
Stated briefly, oil and gas are finite natural resources formed but rarely under now well-understood processes in the geological past. It follows that they are subject to natural depletion beyond market forces. They also have to be found before they can be produced, such that the peak of oil discovery, some forty years ago, which is a matter of historical fact, must inevitably deliver a corresponding peak of production. It is obvious that production in any endowed country starts and ends, passing a peak in between when about half the resource has been extracted, as is amply demonstrated in more than fifty countries that are already in long-term decline. Britain’s production, for example, peaked in 1999, twenty-five years after the peak of discovery, and is declining at 7.5% a year despite an open market and the most advanced technology.
The growth of the economy over the past Century was essentially fuelled by an abundant supply of cheap oil-based energy that stimulated the growth of industry, transport, trade and agriculture, allowing the world’s population to grow six-fold in parallel.
The position would be self-evident were valid information available to the public, which is far from the case. The skills of the detective are called for to unravel misleading industry data and present sound evidence for the patterns of depletion. But there is at last an awakening : even the International Energy Agency, the OECD watchdog, now admits to the situation with the slogan : Let’s leave oil before it leaves us.
A thorough evaluation shows the production profile as illustrated. The peak of Regular Conventional oil was passed in 2005 but the shortfall was made up for by expensive oil from deepwater fields and the tarsands of Canada. Even so, prices firmed, and shrewd traders bought contracts on the Future’s Market, while the industry itself built storage that appreciated in value. Rising prices, which reached a peak of almost $150 a barrel in July, 2008, also delivered a flood of petrodollars to the Middle East giving a massive destabilizing financial surplus that was recycled to western banks. In due course, the self-same shrewd traders saw a limit to the price surge and started selling short, while the industry began to drain its tanks to benefit from the high prices while they lasted. The high prices did allow the development of some extra capacity in several oilfields but also led to an economic recession such that demand fell and prices returned to 2005 levels, before edging up to around $70 a barrel to-day.
The evidence suggests that the peak of all categories of oil coincided with the price surge of 2008, meaning that the world now enters the Second Half of the Oil Age, when production, and all that depends upon it, enters a terminal decline. While the decline is gentle at less than 3% a year, the change is a fundamental turning point for Mankind.
The gas situation is even more serious for Ireland. More than half of its electricity is generated from imported gas, but the country finds itself by geographic location very much at the end of the line from ever more distant sources of supply in Norway, Russia, the Caspian and Middle East, with many increasingly hungry transit countries in between.
This line of reasoning shows that the Government’s NAMA policy, based on outdated economic theory, is seriously flawed. The Celtic Tiger is on its way to the Zoo, but the Celtic Fox can take his place, being a shrewd figurehead under which to plan the future on a realistic assessment of the world’s situation and Ireland’s place within it. It would make sense to re-vitalise the National Petroleum Corporation, and have it take control of the Whitegate Refinery and secure privileged access to dwindling overseas supplies through State to State arrangements.
It is not a doomsday message, for the country is blessed in many ways with green fields, a modest population and plenty of scope for renewable energy from tide, wave, wind and other sources, also having great opportunities for improved efficiency. It can set an example to Europe and the rest of the world, and spare itself the serious tensions. Logic, based on the above insight, suggests that the adoption of NAMA’s plan would by contrast make a bad situation worse.