This article ran earlier to PeakProsperity.com's premium subscribers. Many of them have requested we share it with a wider audience.Given that feedback and since Chris in Munich, Germany right now presenting on a related topic, we are making the below report available to the general public.
The idea of an 'industrial economy' is an extremely recent human invention. And we’ve staked quite a lot on its continuation.
But it faces a massive predicament: It’s running out of resources.
When talking about the “economy”, we're really referring to the flow of goods and services — which are themselves entirely dependent on energy. No energy = no goods and services = no economy. It’s really that simple.
So to track where we are in this story, put on your ‘energy goggles’. If you do, you can discover quite a lot.
Examples of our increasing use of energy to extract primary resources are all around you, if you know where to look. Most folks, though, willfully distract, if not delude, themselves with faith in our technological triumphs, so they remain blind to the evidence — even when it's right in front of their faces.
One indication of increasing energy use is exemplified in the very recent practice of drilling 5-mile long oil wells into source rocks, then performing 100-stage frack jobs that consume up to 50 million pounds of sand and 16 million gallons of water (per job!). This is the essence of the shale oil revolution.
Some see it as a technological marvel; others, as a sign of severe desperation. The media will only ever dutifully tell you the technological marvel side of the story. And while it is a marvel, that's only half the story.
More examples come to us from the world of hard rock mining. Where humans high-graded all the easy, nearby, high-yield ores during the first decades of the industrial revolution, the last few decades are clear examples of increasingly desperate efforts to go after the increasingly dilute residuals that remain.
Again, many of these new mining efforts are both testament to advancing technology and skills, as well as condemnation that the primary inputs for our economic machine are in increasingly short supply.
As mentioned, the media already does a fantastic job telling us about how wonderfully advanced all of these efforts are, so we’ll skip over that side of the story. Rather, this report will help you focus on understanding what these efforts actually represent in terms of where we are in the industrial story, which is really a tale of pursuing infinite exponential growth on a planet of finite resources.
We don’t do this to be sticks in the mud. But because every single stock and bond, as well as our entire collective economic future, is committed to the belief that economic limits will never appear, a reality-based counterpoint is badly needed. We think those limits to growth are already here, and are staring us right in the face once we know where and how to look for them.
If perpetual economic growth isn't possible, then the entire construct of debt-based money will eventually implode. Pensions will not be serviced, and involuntary simplicity will visit economies and cultures alike.
And if our math is correct, it’s already too late to avoid these events. like Wile E. Coyote, all of our hopes and dreams are suspended in mid-air, now too far from the cliff’s edge to scrabble back to safety.
Keeping Your Eye On The Ball
The hard truth is that, after just a few hundred years of intensive exponential economic growth fueled by the industrial revolution’s greatest achievement – unlocking fossil fuels to perform work for us – we are now scraping the bottom of the barrel.
As I noted in The Crash Course, additional resources are becoming harder to find and harder to get. They are more dilute, deeper and more distant. We quite predictably “high graded” the best resources decades (or centuries) ago, taking those that were easiest to get to, the most concentrated, and the most economic.
Once those were gone, we moved on to the harder-to-get to resources.
Now we’re at that awkward part of the story where rational people really ought to be asking some difficult questions besides Can we do this? Now we likely should also be asking Why are we doing this? And What is today's scarcity tell us about tomorrow? And perhaps, Should we even be doing this?
Today’s textbook-perfect example of a project that really ought to provoke some serious inner questioning comes to us courtesy of the WSJ, reporting on the massive Rio Tinto project known as the Resolution Copper Project near Superior Arizona.
As you read this, please set aside the technical brilliance of what’s being proposed, and think instead about what such a project implies about Where we are in the story of perpetual economic growth. Are we closer to the beginning, the middle, or the end?
Mining a Mile Down: 175 Degrees, 600 Gallons of Water a Minute
Jun 7, 2017
SUPERIOR, Ariz.—One of the world’s largest untapped copper deposits sits 7,000 feet below the Earth’s surface. It is a lode that operator Rio Tinto wouldn’t have touched—until now.
Not that long ago, an abundance of high-grade copper could be mined out of shallower open pits. But as those deposits are depleted and high-grade copper becomes tougher to find, firms such as Rio have been compelled to mine deeper underground.
Comment: This is just about as a clear as the writing on the wall can get: The high-grade stuff is gone. This is what’s left. It wouldn’t have even been considered perhaps a decade ago. Now it’s the best option left on the table.
A good question to ask here might be: So what will people be left to mine in 100 years? 50 years? 10 years?
Advances in mining technology are making that possible—just as developments in oil and gas drilling heralded the fracking revolution. Now, using everything from sensors and data analytics to autonomous vehicles and climate-control systems, Rio aims to pull ore from more than a mile below ground, where temperatures can reach nearly 175 degrees Fahrenheit.
“Copper has just become a lot harder to get, and we’re relying on technology to keep dealing with that decline in grade,” said Craig Stegman, Rio’s vice president for operational and technical support for copper and diamonds.
Comment: “Copper has just become a lot harder to get.” That’s code speak for “Copper is now a lot more energy-intensive to get.” Consider the energy costs involved in cooling shafts in the deep earth from 175 degrees down to 77 degrees.
Just for kicks, here’s a handy steak preparedness chart to give us a sense of what 175 degrees means should the cooling systems fail for any reason:
So if the cooling shuts down and anybody gets trapped for an hour or more at 175 degrees, they will be very 'well done'.
Most of the world’s copper is extracted from open pits at the Earth’s surface, according to the International Copper Study Group. Some mines are deeper than the Resolution mine, but this is Rio’s deepest underground mining project to date. While a deep underground block-cave mine costs much more to develop, Rio says it can match the operating costs per ton of ore of a surface mine, partly because it is so mechanized.
“Because Resolution is so deep and so hot, it’s really going to push the envelope of technology,” said Mary Poulton, professor emerita of mining and geological engineering at the University of Arizona.
A 15-minute elevator ride 6,943 feet down Resolution’s No. 10 mine shaft leads to a dimly lighted cavern where warm water falls from the rocks like rain. Electrical gear buzzes constantly, and a network of pipes pumps water out of the shaft at the rate of 600 gallons a minute. A ventilation system cools the area to 77 degrees.
Over the next few years, Rio plans to deploy tens of thousands of electronic sensors, as well as autonomous vehicles and complex ventilation systems, to help it bring 1.6 billion tons of ore to the surface over the more than 40-year projected life of the mine.
Comment: Now lets consider the additional required energy costs, including those needed to pump 600 gallons of water a minute up a vertical mile, and then haul the ore, ton by ton, up that same vertical mile.
That’s a lot of lifting!
So the mine being proposed here is more than a mile underground, wicked hot, flowing with 600 gallons of water a minute (my outdoor faucet can manage 5 gallons per minute, so that’s like 120 of my faucets running full blast all day, every day) that needs to not just be pumped back up to the surface, but then transported and disposed of elsewhere.
Now think about 1.6 billion tons of ore brought to the surface at a tremendous energy cost, which is then smashed and processed. Oh yes, and then the left-over tailings have to be disposed of…somewhere. Energy, energy, energy.
Again, this heroic effort is being proposed only because it is the best one left to prosecute. The engineers and executive staff at Rio Tinto know their business, and they've concluded there's no easier option left to pursue.
Doing The Math
So what’s actually involved here? Perhaps putting a few numbers to it might help us to get our arms around the scale and scope of the proposed project.
Resolution Copper (RCM) is a joint venture owned by Rio Tinto and BHP Billiton formed to develop and operate an underground copper mine near Superior, Arizona, U.S.
The project targets a deep-seated porphyry copper deposit located under the now inactive Magma Mine. Rio Tinto has reported an inferred resource of 1.624 billion tonnes containing 1.47 percent copper and 0.037 percent molybdenum at depths exceeding 1,300 metres (0.81 mi).
The proposed mine is one of the largest copper resources in North America. Following the passage of the 2015 National Defense Authorization Act, many Native American and conservation groups fear the copper mine will destroy sacred and environmentally sensitive land.
These are huge numbers. So let’s start with the biggest. What might it cost in terms of energy to lift 1.624 billion tonnes from 1,300 meters deep?
Well, without any friction or other considerations, it takes 10 Joules of energy to lift 1 kilogram by 1 meter.
A tonne is 1,000 kilograms. So it takes 10,000 Joules to lift a tonne by a meter. Carrying on, it would take 10,000 times 1,300, or 13,000,000 Joules (13 Mega Joules or MJ), to lift 1 tonne of ore to the surface.
Let’s assume that friction and thermal waste cost you around 30%. So the total amount of Joules would be (13,000,000)/0.7 = 18.5 MJ.
Therefore, to lift all 1.624 billion tonnes would require a very large number of Joules: 2.97 * 10^16
And how much energy is that? Well, with a little conversion of MJ into barrels of oil, we discover that just a little over 5 million barrels of oil would be involved just in lifting the ore to the surface.
And for the water, the calculations turn into some 5,000 barrels of oil a year just to lift the water out. That doesn’t seem too ridiculous, but it’s not free either. That’s 5,000 barrels of oil that cannot be used to do something important like grow food, or build out the next energy infrastructure.
It’s being burned simply to keep water out of a mile-deep, super-hot hole in the ground.
I have no idea how much energy is required to cool the deep earth by roughly 100 degrees, but I'll bet it’s a lot. Further, we have no idea what will be done with the approximately 1.6 billion tonnes of mine waste. But if it’s anything like prior efforts, it will end up in a big pile somewhere leaching out awfulness into the surface water table for the next few hundred years.
Put it all together and even though it can be done, and Rio may make a profit doing it, we have to ask: Is this is the best use of that energy at this point in the human experiment?
The Resolution mine proposed by Rio Tinto is progressing because it's the company's the best option left. That tells us that we are now at the stage of chasing resources where going a mile down into the Earth makes sense.
Well, economic sense. But not energy sense.
Without massive energy inputs this mine doesn't happen. When copper came to us relatively easily and more inexpensively in the past, that’s the same thing as saying that it came to market requiring a lot less energy involved. That won't be the case going forward.
We should be asking at this point in the human experiment if it makes sense to be using our remaining energy in this way.
Sure, we can develop the Resolution mine project. But should we? Are there any different or better uses for that energy that might take precedence?
Further, if this is what’s required to keep the whole exponential industrial economic system going, why do so few people see projects like the Resolution mine as the curtain call for the entire project of economic growth?
Look, we all can easily calculate that eventually there are limits to our status quo pursuit of resources. There's only so much fish in the ocean, so much land on which to grow food, and so much non-renewable energy to cheaply exploit.
We all know this intellectually; and yet the idea that such limits might apply seems to most people to be a very distant or dismissable prospect.
But what are 5-mile long oil boreholes and mile-deep copper mines but clear-cut, incontrovertible evidence that we are on the difficult part of the extraction slope?
It’s not like engineers are dreaming up risky, expensive projects for fun. They are chasing what’s left.
If we can already see that we’re at the what’s left part of the story, it’s really not much of an intellectual leap to begin asking: What does the next part of the story look like?
In some respects, that’s easy. Growth will slow down for the simple reason that it’s far easier to grow 4% from a smaller base than from a larger one. It’s doubly hard to grow that 4% on a larger base if the resources required for that growth are more expensive, more dilute, deeper and vastly more energy-intensive than the similar resources that funded prior growth.
So growth will slow. It has to, mathematically.
The next part of the story is also easy to predict: eventually there won't be enough energy to do everything. We will have to begin deciding to do some things but not other things. How society triages that will be very interesting to watch.
Will we consciously jettison this over that? Or will we allow the vagaries of “market forces” to determine what gets shed along the way?
But the big part of this story is that the past 50 years have been entirely dominated by one key economic force: The growth of debt at TWICE the rate of the economy.
Compounding debt at 8% while the economy grew at 4% made sense only using a very narrow “logic” that assumed that, someday, rapid economic growth would magically arrive and bail us out from all that debt. It was a singular bet on growth.
Now it’s entirely obvious that bet is busted. But the urge to continue growing debt is now so thoroughly entrenched that it practically has a life of its own. Virtually every institution now depends on growth continuing the way it has been.
Central banks feverishly work to continue growing debt piles because that’s what they think has to be done. Why? Because that’s what was done during their lifetimes. It’s what they know.
So the remaining key question is: What happens to the world financial system and its mountains of debt if/when the required growth does not materialize? That’s easy, the debt piles implode.
Either through a process of inflation or deflation, those debts will be reduced. The only operative question remaining is Who’s going to eat the losses?
This is why you need to have the proper context for the story at hand. Where the media works 24/7 to laud the "technology is amazing" angle, you need to be aware that this obscures the even more important observation that the technology is there because we’re at a very delicate and new part of the story.
The bottom line is this: humans are now at the desperate phase of trying to keep the perpetual expansion model alive. These efforts are clearly failing, which we can detect in faltering ecosystems, slowing global growth, and immensely energy-intensive and environmentally-destructive efforts to get the remaining dregs out as fast as possible.
You can easily detect this desperation in the projects being proposed. Ask yourself what a human just 100 years ago would have thought if you’d pitched these ideas to them:
- We can grow lettuce in metal boxes using LEDs near cities!
- Scraping 10’s of thousands of acres of Canadian wilderness and then use hot water to scrape a waxy reside off of each grain of sand leaving behind a moonscape and systemically poisoned waters.
- Drilling 5 miles and using huge amounts of water and toxic chemicals to create short-lived oil wells.
- Mile deep holes in a hot spot to get at some 1.45 concentration copper ore.
- Creating new, more powerful and more lethal pesticides and herbicides because the last round became a little less effective.
In closing, the fact that we can do all of these things is a testament to human ingenuity, and my role here is not to bash that side of the equation. Instead I'm here to provide some balance to that incessant cheerleading. As discussed here, there is a very important side of the story the media too often ignores.
As much as I try, I cannot gaze out over the next few decades without concluding that technology is simply prolonging the inevitable date with less that humanity will have to confront.