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A Monday Morning Musing from Mickey the Mercenary Geologist
Non-renewable natural
resources (e.g., industrial metals, precious metals, agricultural minerals,
industrial minerals and rocks, energy fluids, and energy solids) are
extracted from Earth’s surface and its depths. Exploitation of these
resources naturally leads to depletion and more must constantly be found,
developed, and mined. In our economic system, unit prices of commodities
reflect current supply and demand fundamentals.
There are two distinct
and diametric philosophical positions on availability of adequate supplies
required to meet future demand of non-renewable natural resources.
On one side are the
optimists, i.e., those who generally view a glass as half-full. These folks
are called “cornucopians”. They surmise that Earth contains an abundance and
in fact, a bounty of all resources that mankind requires for his well-being,
prosperity, and longevity as a species. Furthermore, they postulate that we
will never run out of a critical resource, will find a substitute, or will
invent a technology to get what we need when we need it.
The basis of cornucopian
philosophy is capitalistic; i.e., as a resource becomes scarcer its price
will rise. Stimulated by higher value, more will be found, developed, and
produced, more will be recycled, new technologies will require less of it,
and if beneficial or necessary, a substitute will be found.
Inhabiting the other side
are the pessimists, i.e., those who view the very same glass as half-empty.
They are the malthusians, disciples of Thomas Malthus, a late 18th
to early 19th Centuries English cleric, professor, and economist
who predicted the pending decline of mankind due to rapid population growth
that unless controlled, would outpace agricultural growth. He postulated that
cycles of population growth in times of plenty beget famine, disease, and war
in times of scarcity.
The malthusian philosophy
looks at increasing demand as a negative. It universally predicts supply
deficits, critical shortages, and economic crises leading to catastrophic
cultural and societal declines in the human condition or even our extinction
as a species.
Avowed iconoclast George
Carlin added a bit of levity to this dichotomy by observing that the glass is
twice as big as it needs to be. He had a point.
But I digress…
As an economic geologist
and analyst, I am by nature an optimist (though always skeptical). With that
philosophical mindset, I embrace the cornucopian viewpoint.
And today, I will
unequivocally illustrate in a series of facts, figures, and graphs why the
malthusians and other assorted pessimists and nihilists of their ilk (e.g.,
the religious enviro-fundamentalists and the eco-socio-fascists) have been,
are, and will always be …
Absolutely WRONG in their
cynical, gloom and doom opinions of humankind and the bountiful planet on
which we live and breathe.
In a think-piece a few
years ago, I responded in print to a media query of whether Earth has ever
run out of a natural resource. Based on my unabashedly cornucopian views, you
may be surprised by the reply (Mercenary Musing, March 19, 2012). I answered yes but
could only come up with one example and there were unique circumstances that
led to its near exhaustion.
Read this short essay to
learn the particular commodity and why it was all but used up in less than 35
years. Quite predictably, a substitute was soon discovered, a war was fought
to control the new commodity, and the industry that needed it continued to
prosper. Since that period over 140 years ago, a second substitute that is
man-made now supplies the exponentially growing world demand.
Let’s flesh out the meat
on the bone now. To establish my cornucopian case, I present evidence from
four of the world’s most valuable and essential commodities: Oil, iron ore,
copper, and gold.
Oil is the most important
natural resource exploited by modern man. The world’s economy literally runs
on oil and it supplies 33% of our annual energy needs. World oil production
has long been predicted to decline in the near- to intermediate future. This
platform grew out of a misappropriation of the thesis of a brilliant
geologist and geophysicist, King Hubbert, in the late 1950s. Dr. Hubbert
studied and wrote about giant oil fields and districts in the United States.
Because all oil and gas fields have a natural and significant decline curve,
Hubbert used historical data to predict that US oil production would peak in
1970.
And he was right on the
money: US oil production did indeed peak in November 1970 at 10.0 million
bbls/ day. It then fell off dramatically and dropped to little more than half
that amount 30 to 40 years later.
“Peak oil” production for
the world was in particular favor by the malthusians in the mid-2000s given
rapidly increasing demand from China and other historically poor countries as
they assimilated into the modern global economy.
Despite an exponentially
growing population and worldwide increases in the standard of living in the
20th and 21st Centuries, we have nevertheless
constantly and continuously produced more oil to meet burgeoning demand.
In this graph, I
illustrate world oil production in millions of barrels per day from 1900 to
2017:
Annualized growth in crude
oil production has averaged a whopping 4.7% since 1900. Note the overall
steady increase in demand thru 1920, the production surge as the automobile
became a way of life in the US after WWI, the drop off during the 1930’s
depression, and a steep rise during and after WWII that continued thru 1960.
The latter 60-year period
shows the accelerating increase in demand that continued until the first
Middle East oil embargo and recession of 1973-1974. This was followed by
robust growth until the second oil embargo and another recession in the early
‘80s. Overall demand has continued to increase over the past 35 years but
with numerous perturbations that reflect geopolitics in the Middle East, the
rise and fall of OPEC’s power over world oil markets, accelerating demand
from China and other developing countries, and most recently, the shale oil
revolution in the United States that has more than doubled domestic
production since 2008.
The relative flattening
in the world production curve from 2015-2017 reflects a price crash in late
2014 largely driven by the phenomenal increase in US production. It hit an
all-time record level in November 2017, 47 years after the prescient Hubbert
was proven right.
Indeed, there has been a
vast oversupply of crude oil for the past four years. It first resulted in
weak prices and was followed last year with voluntary cuts by OPEC and
Russia, in whole amounting to about 1.5% of annual production. These cuts
were designed to stimulate prices and reduce record oil inventories. But domestic
shale production just keeps going up, despite bottlenecks in pipelines to
refineries and inadequate export capacities. Production is 11.7 million
bbls/day and is projected to average over 12.0 million in 2019.
Folks, the malthusian
prediction of peak oil that came across so loud and so vociferously ten to
fifteen years ago was just a bunch of malarkey. In fact, the exact opposite
has occurred: we have found, developed, and produced way too much oil over
the past few years and have overwhelmed a yearly growth in world demand of
1.3-1.5%. All our numbers are from the US Energy Information Agency (EIA) and
do not include natural gas liquids or condensate production. That said, crude
oil production will be very near 30 billion bbls in 2018.
As an aside, note that
70% of the oil contained in fields discovered throughout the world remains in
the ground and awaits development of the ways and means to extract
economically.
Meanwhile, technological
advances such as horizontal drilling and fracking have enabled additional
production in old fields and basins from tight shales that until a decade
ago, were viewed only as the source rocks for oil and not as potentially
productive reservoirs. These new recovery techniques have been applied
extensively to US onshore basins but at this juncture, nowhere else in the
world to any extent.
Offshore exploration,
development, and production technology has also made significant advances
over the last few years with drilling in much deeper water and more remote targets
now feasible.
There are oil-bearing
sedimentary rocks all around the globe and they are scattered throughout 500
million years of the geological record. Oil production is geographically
diverse: Three countries currently produce more than 10 million barrels per
day and another 17 produce more than 1 million barrels. In total, 41
countries produce greater than 100,000 barrels of oil each and every day.
You say, “Peak Oil.” … I
say, “Phooey!”
Iron is overwhelmingly
the most important metal consumed on Earth, comprising about 95% (as iron
ore) of the total annual output from mining of metals. Iron ore is a very low
value bulk commodity priced by the tonne. Unlike most other major metals, it
is not traded on world exchanges or derivative markets but instead is priced
mostly by annual contract negotiations between miners and consumers and a
spot market.
The world mine production
chart for iron ore since 1904 (1900-1903 are not available from our USGS
source) is again a story of increasing demand for over 110 years:
From 1904 to 2017, the
worldwide mining of iron ore increased over 25 times, from 95.5 to 2400
million tonnes for an annualized growth rate of 2.9%. On a yearly basis,
production increased and declined in a volatile fashion, affected by both
macroeconomics and armed conflict thru the middle of World War II.
With a post-war economic
boom first driven by the United States and then by the rebuilding of Western
Europe and Japan, iron ore production surged in a steep line thru the late
1970s. From the early ‘80s recession until the late ‘90s, growth was uneven
but production grew to over a billion tonnes per year.
Then in 2002, demand for
iron ore rose dramatically when China embarked on by far the largest program
of industrialization and infrastructure build out in history. Over the past
15 years, iron ore production has gone from 1100 to 2400 million tonnes per
year.
This rampant growth is
slowing now but has shown little evidence of regressing. Shy of a major world
economic recession, iron ore production is expected to remain strong with
India and other countries in eastern Asia next to assimilate into a modern
market economy.
The Earth is geologically
endowed with vast quantities of near-surface iron ores in bulk mineable
accumulations. Most of them formed from 2.4 to 1.8 billion years ago as
sedimentary rock deposits when photosynthesis by blue-green algae caused the
oceans to become oxidized. Dissolved iron in the water was precipitated as
iron oxides and accumulated in massive deposits on the sea floor called
banded iron formations.
The USGS lists current
iron ore resources at 800 billion tonnes. Given 2017’s record production at
2.4 billion tonnes, these resources constitute over 330 years of supply at
current mining levels and grade requirements. Many giant deposits of lower
grade material are known but are not presently economic.
Note also that iron is
the fourth most abundant element in Earth’s crust, behind only oxygen,
silicon, and aluminum. The possibilities for iron ore resources are endless.
In addition, a significant percent of annual iron and steel production is
from recycled materials.
So folks, I think we can
rest assured that the world is not going to run out of iron ore.
Next on the agenda is
copper, aka the metal with a PhD in economics. Copper is required for
everything electrical and is used extensively in building materials and
alloys. As such, it is the third most utilitarian metal, behind only iron and
aluminum.
Since 1900, annual mine
production of copper has increased quite systematically from slightly less
than half a million to over 20 million tonnes per year (>40 times) for
annualized growth of 3.2%. Annual worldwide consumption is best reflected by
refined copper that includes scrap and recycled materials; it now amounts to
over 24 million tonnes.
The rapid growth in
copper consumption is driven mostly by electrification. World population and
per capita consumption has grown from 2.6 billion people at 1.2 kg each in
1950 to 7.3 billion people at over 3.2 kg each in 2017. That, my friends, is
astounding.
A graph of mine
production from 1900 to 2017 follows:
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The connection of copper
production to world macroeconomics and geopolitical events is well-documented
by this graph. There was a steady increase in mined copper from 1900 to WWI,
then a steep drop off as the economy recessed after the war. In the Roaring
‘20s, production soared until the crash of 1929. It bottomed at the depth of
the depression in 1932 and took until the late 1930s to recover.
From the advent of WWII
to the height of the war in 1943, copper mining peaked. Although it did not
recover that level again until the early 1950s, production has been on the
uptick constantly from 1946 to the present with hardly a respite as the world
has and continues to become increasingly electrified. Brief perturbations
occurred during periodic recessions over this 70-year interval.
The emergence and rapid
industrialization of China starting in the mid-1990s is marked by a much
steeper curve of increasing mine production. In fact, world copper production
doubled from 10 million tonnes in 1995 to over 20 million tonnes in 2016.
China now accounts for about 45% of annual copper demand.
There is a dearth of new
copper projects on the near-term horizon. I submit this has mostly to do with
four years of low copper price and a concomitant lack of new development. It
is generally accepted by analysts that a long-term base price of $3.30/lb is
required to stimulate financing and development of new copper mines.
Average mine grades for
copper have declined dramatically in recent years. But that is the general
nature of all metals extracted over time. Easily discovered, surficial,
high-grade deposits are exploited first. The history of mining for all metals
has been one of larger tonnages, declining grades, and lower prices on a constant
dollar basis.
Be aware that there are
thousands of known, drilled-out copper deposits in the world that are
currently too low grade, too deep, too difficult to process and recover, too
remote, too climate-challenged, too far from infrastructure, too large, too
small, and/or too geopolitically risky to attract capital for development and
mining in today’s macroeconomic and nationalistic climate.
If supplies become short
and insufficient to meet demand, then the price of copper will go up, new
technologies will be developed, and some of the many known deposits will
become economically attractive.
That said, recall that
the definition of ore is rock that can be mined at a profit. A
corollary acknowledges the importance of economics over time: What was ore
yesterday is not always ore today and may or may not be ore tomorrow (Mercenary Musing, August 25, 2008).
But folks, here’s an ace
in the hole: The USGS estimates there are 2.1 billion tonnes of known copper
resources and another 3.5 billion tonnes of “undiscovered resources” in the
ground. At current mine production levels, these numbers equate to a ready
supply for the next 280 years.
As with iron ore, a
significant and growing amount of copper is recycled. In 2016, it comprised
29% of global usage according to the ICSG.
Plus substitution is
always looming. For instance, remember back when phone and cable TV signals
were carried in thick copper wires strung overhead on big wooden poles? Then
along came underground fiber optic lines that transmitted much cleaner and
clearer signals several orders of magnitude faster for phone, television, and
internet. That once big demand for copper was soon kaput.
Finally, let’s look at
money, i.e., gold. I recently wrote about the flawed premise of peak gold and
will not rehash my position in detail here (Mercenary Musing, December 3, 2018). Suffice it to
say that the price of gold is not governed by usual supply and demand
fundamentals: 85% of gold is stored or hoarded in jewelry and bullion as a
store of wealth and a safe haven against financial calamity. Because it is so
valuable and does not corrode or oxidize, an estimated 98% of all the gold ever
mined is still above ground and available for trade, barter, and recycling.
Annual gold production
since 1900 is shown below:
World gold production
increased from 386 tonnes in 1900 to 3150 tonnes in 2017. That is an eight
times increase for an average gain of 1.8% per year.
The above chart of
the118-year record of increasing gold production is a strong argument against
peak gold. Gold demand is driven by geopolitical unrest and economic duress.
If global tensions and more importantly, the potential for world financial
collapse are high, then the demand for gold as a safe haven and insurance
policy will increase. Price will follow suit, gold mining will remain
profitable, and robust production will continue.
I have shown that mining
of four of the world’s most important natural resources, namely oil, iron
ore, copper, and gold, has increased steadily and relentlessly with few
pauses over 118 years from the early industrial age to the present.
This is the strongest
argument for a cornucopian outlook of Earth. Assuming past is prologue, the
history of our industrialized age repeatedly shows us that as the world
population increases and standards of living improve, resource demand
increases at higher rates. That said, we have without fail found, developed,
and extracted the supplies required for all of these heightened demands. I
find no reason to think that paradigm will not continue.
As further evidence,
let’s revisit some infamous curmudgeons of the malthusian camp and their
false narratives. My arguments against this cabal are exemplified by two
notable and failed predictions made during the social and political turmoil
of the late 1960s and early 1970s.
The Population Bomb (1968) was a best-selling book
written by Stanford University Professor Paul Ehrlich and his wife Anne in
1968. Its alarmist predictions were based on a premise of overpopulation that
would spawn mass starvation and other societal upheavals in the 1970s to
1980s. It called for shocking and draconian actions to limit populations,
such as cutting off of food supplies to countries that refused to address
population growth. Among Dr. Ehrlich’s more ridiculous predictions of the
time: all important animal sea life will die offin 10 years; India will not
be able to feed another 200 million people by 1980; and England will not
exist as a country in 2000.
The Club of Rome’s Limits
to Growth (1972) used computer modeling to generate a collection of
charts predicting serial resource depletion, economic and societal collapse,
and a sudden decrease in population and industrial capacity within 100 years.
The authors proposed that the only solution to the presumptive dilemma was to
immediately stop population growth and to restrict industrial output per
capita at then present levels. Their idealized world would be accomplished
via a no growth scenario and exist in a state of global equilibrium with a
self-sustaining society. The overall birth rate would equal the death rate
and capital investment would equal the depreciation rate.
However, their dubious
World3 computer model was based on flawed assumptions that resource use would
grow exponentially while technological advances to increase resources would
only increase linearly, that all non-renewable resources had a 110-year
lifespan, and that the present amount of agricultural land was at its
ultimate limit.
Included among its misfit
projections: the world would run out of oil in 20 to 50 years (1992-2022) and
gold would be mined out in 9 to 29 years (1981-2001).
The work faced immediate
ridicule and had lost all credibility by the 1990s. Its methodology has been
described by the old computer maxim, “garbage in, garbage out” and the
overall work as “Chicken Little with a computer”.
The catastrophic
forecasts made in these seminal books, the first written by a self-described
malthusian and the second by a collective of environmental scientists and
computer jockeys with a socialist agenda, have not approached any semblance
of reality in the intervening 45-50 years.
Yet we as logical,
rational, and practical scientists are repeatedly inundated with such dire
and catastrophic forecasts by government-supported PhDs with malthusian
bents. Furthermore, their inane doomsday prophecies are then promulgated as
sure-fire scenarios by the popular mainstream media.
Other notable examples
that have lost all credibility over the last half century include: global
cooling that would initiate a new Ice Age (1965-1975), acid rain that would
kill all the fish and denude all the forests in northeastern North America
and Northern Europe (1972-1983); ozone hole layer that would cause a
worldwide outbreak of human skin cancers and cataracts (1976-1989); and the
global warming hockey stick that would result in a “20-foot sea level rise in
the near future” (Al Gore, 2006).
Well, that’s enough of
that; let’s get back to the “peak whatever” discussion.
I have shown in a series
of facts, figures, and graphs that peak oil, peak iron, peak copper, and peak
gold are all figments of imagination in the minds of malthusians. As these
are four of the major and essential non-renewable resources that run our
industrialized society, I can extrapolate and state that we are equally as
unlikely to exhaust other commodities.
Mankind inhabits a
beautiful and bountiful Blue Marble that has, does, and will supply us with
what we need and what we want on demand:
That said, science is
always a serial exercise of experiment, hypothesis, theory, and principle. It
can never be exact, stagnant, or settled.
So perchance that we do
in some future century or millennia eventually exhaust one or more of our
essential natural resources on Earth: What then?
As a geologist, a
cornucopian, and an optimist, I am convinced that humans will live on and
will mine other rocky bodies in our solar system in the 21st
Century, whether they are asteroids, moons, or planets. And we will
undoubtedly transport some of what we extract back to Earth.
Looking to the longer
term and a worst-case scenario, I opine that we will have migrated to another
blue-green planet in the Milky Way long before any catastrophic,
malthusian-style socio-economic event could possibly extinguish our by then
significantly evolved species:
All hail science, reason,
and logic and the driver of human evolution and progress: Optimism!
Ciao for now,
Mickey Fulp
Mercenary Geologist
Acknowledgment: Troy McIntyre is the research
assistant for MercenaryGeologist.com.
Sources of data for this musing include the USGS, EIA, and ICSG.
The Mercenary Geologist
Michael S. “Mickey” Fulp is a Certified Professional Geologist with a
B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc.
Geology from the University of New Mexico. Mickey has 35 years’ experience as
an exploration geologist and analyst searching for economic deposits of base
and precious metals, industrial minerals, uranium, coal, oil and gas, and
water in North and South America, Europe, and Asia.
Mickey worked
for junior explorers, major mining companies, private companies, and
investors as a consulting economic geologist for over 20 years, specializing
in geological mapping, property evaluation, and business development.In
addition to Mickey’s professional credentials and experience, he is
high-altitude proficient, and is bilingual in English and Spanish. From 2003
to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and
British Columbia.
Mickey is
well-known and highly respected throughout the mining and exploration
community due to his ongoing work as an analyst, writer, and speaker.
Contact: Contact@MercenaryGeologist.com
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