Thursday, January 8, 2015

The Seneca Cliff of Energy Production

The graph above was created by Gail Tverberg on her blog "Our Finite World". It is, clearly, another case of what I called the "Seneca Cliff" (from the Roman philospher who said "the road to ruin is rapid). The Seneca Cliff takes this shape, when generated by a system dynamics model:

Gail's forecast of the future of energy production is not the result of a the same model I developed, but the reasons behind the steep decline are the same. Gail explains it in a post of hers as:

All parts of our economy are interconnected. If parts of the economy is becoming increasingly inefficient, more than the cost of production in these parts of the economy are affected; other parts of the economy are affected as well, including wages, debt levels, and interest rates.

Wages are especially being crowded out, because the total amount of goods and services available for purchase in the world economy is growing more slowly. This is not intuitively obvious, unless a person stops to realize that if the world economy is growing more slowly, or actually shrinking, it is producing less. Each worker gets a share of this shrinking output, so it is reasonable to expect inflation-adjusted wages to be stagnating or declining, since a stagnating or declining collection of goods and services is all a person can expect.

At some point, something has to “give”.

Which is a good description of the mathematical model at the basis of the Seneca cliff idea. The burden on the economy of increasing costs becomes more and more heavy in times of diminishing returns (or, as Gail says, increasing inefficiency, which is the same). At some point, something "gives" and the whole thing comes down. Seneca rules.


  1. Ugo, it appears that since 2012 that the US energy sector consumed approximately 80% of the increase in oil production in order to produce a marginal increase in oil production of 500Kbbl/day.

    During the same period, the 5-year change rate of oil production reached the fastest rate since 1927 and 1937.

    The annual change of consumption and production appears to have peaked in 2013, with the YoY of consumption decelerating to the 3-year rate.

    This is an example of the "Red Queen Race", and it's likely that we have sprinted off the edge of the Seneca Cliff as of 2013-14.

    1. BC:

      Do you have a reference we could examine. I am quite curious.


    2. BC
      Intuitively I 'get' Seneca and Red Queen, but there still seems some net growth in the total global economy. Does that global growth prevent, for a while, the 'Seneca effect' sudden downturn? We appear to have seen until now only gradual adverse trends in aggregate wages and employment levels in the of OECD economies? To [put it another way, with some growth still in the total system, a coming decline could be more gradual? Or is there more likely a domino effect accelerating out from Japan, S Europe and parts of N America – thus a rapidly spreading 'crisis'?


  2. Hi Ugo.

    I think it is increasingly obvious that 2015 is a way too premature. US oil extraction is (still) growing rapidly, and the global conventional oil plateau seems not to go away very soon. Seneca cliff is ok, but I have problem with putting a year on the peak date.

    If 2015 is not the case (which I think is not that terribly important from broader perspective), who will read Gail's post 2-3 years later? That said - we already have tons of (peak) oil related problems nobody cares about, but making prognosis such as Gail is doing can do a lot of damage, too, I think. I don't think (yet) that oil price crash is an introduction to Seneca cliff.



  3. The cliff is higher because of fracking oil tar sands and other extreme methods of energy extraction. Because of high prices fracking in the US has increased production, this excess production has a rather high price break even point, oil is traded at the margin, a reduction of us oil imports is one of the causes of oil price decline. The decline in prices results in much of the current oil being priced below production costs.

    Which is why unless either a large new conventional oil field is discovered in the US, or international oil prices rise dramatically, the country can not ever become energy independent. And why the US oil production will collapse off of a cliff.

  4. I think that we are still on the bumpy plateau. The price falls, so capex falls, so production falls, so the price goes up again and the cycle repeats. When the 5% per year depletion catches up with increases in US production is where the rubber meets the road. With the current surplus, that might take two years. On the other hand there should be a tipping point where the EROI gets too low, and the price gets too high for a growing, or even static, economy to continue without severe disruption. Because of the volatility of the oil market, we may not see that point except in the rear view mirror.

  5. 2016 is here and Oil prices are still at a record low



Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014)