World conventional oil production peaked in 2005. Since then world primary energy consumption has been maintained (and even increased a bit) by the exploitation of tar sands, very deep-water offshore oil production, shale oil and gas production, and most of all, much higher coal production.

This is significant because it means that a growing proportion of capital is being allocated to the process of finding, extracting and refining primary energy resources of declining quality. This in turn means that there is a limit to the growth prospects of the world industrial base, whatever its location. The economic problem is that investment is failing to keep up with depreciation of the underlying asset stock.

The world is allocating more labour, physical and financial capital to support primary energy production in order to maintain a semblance of the status quo ante, which is another way of saying that the World Model base case is a very close approximation to what has actually happened. This has created a confusing analytical environment for economists, politicians, investors and corporate planners, all of whom would undoubtedly prefer business – and crucially consequences – as usual. [Read more...]