Citizen Action Monitor

“I called the Crash of 2008, I’m calling the Crash of 2018” – Dr. Nafeez Ahmed

Nafeez draws on new research to warn world faces an oil crunch, which will trigger another financial crisis.

No 2066 Posted by fw, October 2, 2017

Dr. Nafeez Ahmed

“New scientific research suggests that the world faces an imminent oil crunch, which will trigger another financial crisis. A report by HSBC shows that contrary to the commonplace narrative in the industry, even amidst the glut of unconventional oil and gas, the vast bulk of the world’s oil production has already peaked and is now in decline; while European government scientists show that the value of energy produced by oil has declined by half within just the first 15 years of the 21st century. The upshot? Welcome to a new age of permanent economic recession driven by ongoing dependence on dirty, expensive, difficult oil… unless we choose a fundamentally different path.”Dr. Nafeez Ahmed, True Publica

Dr. Nafeez is a Visiting Research Fellow at the Global Sustainability Institute at Anglia Ruskin University’s Faculty of Science and Technology. He is also an award-winning 15-year investigative journalist and creator of INSURGE intelligence, a crowdfunded public interest investigative journalism project.

Below is an abridged version of Dr. Nafeez’s long, technically challenging article, with added subheadings, text highlighting, and an added hyperlink. Alternatively, read the full article on True Publica’s website by clicking on the following linked title.

Nafeez’s closing words of advice –

“This year [2017], we can prepare for the post-2018 resurgence of crisis convergence by planting seeds — however small — for that future in our own lives, and with those around us, from our families, to our communities and wider societies.”

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Brace For The Oil, Food and Financial Crash of 2018  by Nafeez Ahmed, True Publica, September 23, 2017

Global oil production has peaked, says Hongkong and Shanghai Banking Corporation (HSBC)  

Last September, a few outlets were reporting the counterintuitive findings of a new HSBC research report on global oil supply. Unfortunately, the true implications of the HSBC report were largely misunderstood.

Global energy supply in coming years will be insufficient to sustain rising demand

The HSBC research note — prepared for clients of the global bank — found that contrary to concerns about too much oil supply and insufficient demand, the situation was opposite: global oil supply will in coming years be insufficient to sustain rising demand.

Report foresees twin crises of ‘peak oil’ and ‘peak demand’

Yet the full, striking import of the report, concerning the world’s permanent entry into a new age of global oil decline, was never really explained. The report didn’t just go against the grain that the most urgent concern is ‘peak demand’: it vindicated what is routinely lambasted by oil majors as a myth: peak oil — the concurrent peak and decline of global oil production.

NSURGE intelligence obtained a copy of the report in December 2016, and for the first time we are exclusively publishing the entire report in the public interest.

When HSBC speaks, it would be wise to pay attention

Headquarted in London, UK, HSBC is the world’s sixth largest bank, holding assets of $2.67 trillion. So when they produce a research report for their clients, it would be wise to pay attention, and see what we can learn.

Shocking finding – 81% of world’s total oil liquids production is in decline

Among the report’s most shocking findings is that “81% of the world’s total liquids production is already in decline.”

Heightened risk of global oil supply shock around 2018

Between 2016 and 2020, non-OPEC production will be flat due to declines in conventional oil production, even though OPEC will continue to increase production modestly. This means that by 2017, deliverable spare capacity could be as little as 1% of global oil demand.

This heightens the risk of a major global oil supply shock around 2018 which could “significantly affect oil prices.”

 The biggest challenge will be to offset declines in mature fields

The report flatly asserts that peak demand (the idea that demand will stop growing leaving the world awash in too much supply), while certainly a relevant issue due to climate change agreements and disruptive trends in alternative technologies, is not the most imminent challenge:

 “Even in a world of slower oil demand growth, we think the biggest long-term challenge is to offset declines in production from mature fields. The scale of this issue is such that in our view rather there could well be a global supply squeeze some time before we are realistically looking at global demand peaking.”

Current oil glut has driven down oil prices leading to investment cut backs

Under the current supply glut driven by rising unconventional production, falling oil prices have damaged industry profitability and led to dramatic cut backs in new investments in production. This, HSBC says, will exacerbate the likelihood of a global oil supply crunch from 2018 onward.

*****

Crisis convergence

Looking in the rear view mirror to forecast the future

[The] HSBC global oil supply report provides quite stunning confirmation that for the most part, global oil production is already in post-peak. That much is incontrovertible, and derived from industry-validated data.

HSBC believes that after 2018, this is going to manifest in not simply a global supply shock, but a world in which cheap, high quality fossil fuels is increasingly hard to find.

We don’t need to accept this forecast dogmatically — the post-peak oil market, which HSBC confirms now exists, may function differently than what anyone can easily forecast.

But if HSBC’s forecast is accurate, here’s what it might mean —

One possible scenario is that by 2018 or shortly thereafter, the world will face a similar convergence of global crises that occurred a decade earlier.

In this scenario, oil price hikes would have a recessionary affect that destabilizes the global debt bubble, which for some years has been higher than pre-2008 crash levels, now at a record $152 trillion.

In 2008, oil price shocks played a key role in creating pre-crisis economic conditions for consumers in which rising living costs helped trigger debt-defaults in housing markets, which rapidly spiralled out of control.

In or shortly after 2018, economic and energy crisis convergence would drive global food prices up, re-generating the contours of the triple crunch we saw ravage the world from 2008 to 2011, the debilitating impacts of which we have yet to recover from.

2018 is likely to be crunch year for another reason. 1 January 2018 is the date when a host of new regulations are set to come in force, which will “constrain lending ability and prompt banks to only advance money to the best borrowers, which could accelerate bankruptcies worldwide,” according to Bloomberg. Other rules to come in play will require banks to stop using their own international risk assessment measures for derivatives trading.

Ironically, the introduction of similar well-intentioned regulation in January 2008 (through Basel II*) laid the groundwork to rupture the global financial architecture, making it vulnerable to that year’s banking collapse. {*Basel II is an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations. The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision].

In fact, two years earlier in July 2006, Dr David Martin, an expert on global finance, presciently forecast that Basel II would interact with the debt bubble to convert a collapse of the housing bubble into a global financial conflagration.

Just a month after that prescient warning, I was told by a former senior Pentagon official with wide-ranging high-level access to the US military, intelligence and financial establishment that a global banking collapse was imminent, and would likely occur in 2008.

My source insisted that the event was bound up with the peak of global conventional oil production about two years earlier (which according to the UK’s former chief government scientist Sir David King did indeed occur around 2005, even though unconventional oil and gas production has offset the conventional decline so far).

Having first outlined my warning of a 2008 global banking collapse in August 2006, I re-articulated the warning in November 2007, citing Dr. Martin’s forecast and my own wider systems analysis at a lecture at Imperial College, London. In that lecture, I specifically predicted that a housing-triggered banking crisis would be sparked in the context of the new era of expensive fossil fuels.

*****

I called it then, and I’m calling it now.

Probability of crisis convergence in global energy, economic and food systems some time after January 2018

Some time after January 2018, we are seeing the probability of a new crisis convergence in global energy, economic and food systems, similar to what occurred in 2008. In the end, I might be wrong. The crash might not happen in exactly 2018. It might happen later. Or it might be triggered by something else, something unexpected, that the model outlined here doesn’t capture. The point of a forecast is not to be right — but to imagine a potential scenario based on the data available that one can reasonably prepare for; and to adjust the model accordingly in light of new data.

For reasons related to the energy system, the global economy is vulnerable to a financial crisis

Whether or not a crash takes place in precisely the way suggested here, what’s clear from the new research is that the economy is hugely vulnerable to a financial crisis for reasons that conventional economists don’t talk about — reasons relating to the energy system on which the economy is fundamentally dependent.

The economy is not in “recovery”; it is going through a “global systemic phase shift”

Today, we are all supposed to quietly believe that the economy is in ‘recovery’, when in fact it is merely transitioning through a fundamental global systemic phase-shift in which the unsustainability of prevailing industrial structures are being increasingly laid bare. The truth is that the cycles of protracted economic crisis are symptomatic of a deeper global systemic process.

The next crash is a symptom of global system failure driven by the transition to a post-carbon, post-capitalist future

One way we can brace ourselves for the next crash is to recognize it broadly for what it is: a symptom of global system failure, and therefore of the inevitable transition to a post-carbon, post-capitalist future. The future we are stepping into simply doesn’t work the way we are accustomed to.

We are in the dying age of energy and technological super-abundance

The old, industrial era rules for the dying age of energy and technological super-abundance…

The new post-carbon era will move beyond endless growth at any environmental cost and debt-driven finance

… must be re-written for a new era beyond fossil fuels, beyond endless growth at any environmental cost, beyond debt-driven finance.

Prepare for the post-2018 resurgence of crisis convergence by planting seeds

This year, we can prepare for the post-2018 resurgence of crisis convergence by planting seeds — however small — for that future in our own lives, and with those around us, from our families, to our communities and wider societies.

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