David Messler, a four-decade veteran of the American oil services industry, judged in a long study in OilPrice.com Nov. 16 that the severe plunge in fossil fuel investment which briefly led into the 2008 global financial crash, has been repeated since 2016 in a much deeper and more long-lasting drop in investment. He is tracking the effects of the Green Deal, and his headline asks, “Could the Energy Crunch Lead to a Worldwide Financial Crisis?” (https://oilprice.com/Energy/Crude-Oil/Could-An-Energy-Crunch-Lead-To-A-Worldwide-Financial-Crisis.html)
Messler’s basic thesis is that the 2008 crash was triggered by a huge bubble in unaffordable real estate following a sharp drop in fossil fuel investment and production. He reports that now “Investment and spending on fossil fuels has declined precipitously from 2014.” Spending on oil extraction investment worldwide, which averaged roughly $700 billion/year for the first half of the last decade, suddenly fell to $450 billion/year from 2016-19, and to $300 billion/year in 2020-21. World liquid fuels production has dropped from 102 million barrels/day in 2018-19 to 91 million now, according to the Energy Information Administration. Global coal power generation dropped by 14% in the past five years, by 10% in the past two years alone. In fact, total worldwide investment in the entire energy sector dropped in 2016-20 in China, Europe, Southeast Asia, and South America; was unchanged in the United States; and rose slightly in India only by a tripling of investment in “renewables.”
Simultaneous with this cutting of energy production, investment, and productivity, Messler reports, has been the money-printing deluge. “We are now seeing an asset pricing bubble on a scale never before seen. In the span of a year and a half, the [U.S.] money supply has increased from $4.5 trillion to nearly $20 trillion, and there is more coming. The recently passed Infrastructure Plan will bring another couple of trillion of direct and ancillary spending. The Build Back Better plan waiting in the wings for a reconciliation passage will add another $2.0 to $3.5 trillion to the Fed’s balance sheet.”
Messler goes on, as another repeating factor from the 2008 crash, “In the past 5-years the median U.S. home price has climbed 68% with much of that coming since the first of the year” 2021. This despite the fact that – contrary to endless media stories during the pandemic – the share of American households moving continued its 45-year-long drop in 2020. Only 6% of households moved in that year, indicating that, not only were they not “running to the exurbs,” they were more stuck than ever. The median household cannot now afford the median home.
The engineer concludes, “there is a reasonable case that a financial crisis could result from the lack of upstream investment we have discussed so far, and the continuing bashing of the industry that is vital to maintaining our standards of living…. The hour is very late in terms of being able to respond to a prolonged price spike, or physical shortage of oil.”
