Europe: How to Become Poor Peasants Again

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“Les Glaneuses”  (the gleaners). A painting by Francois Millet (1857). Is this the destiny of the people of Western Europe as the result of the war in Ukraine?

All wars are wars for resources and, in modern times, they have been mostly for the resources that make the very existence of our civilization possible: fossil fuels. We all know how during WWII the attempt by Germany to subdue the Soviet Union failed when the Germans could not take control of the oil resources of the Caucasus. Then, after president Carter declared that the oil resources of the Middle East are a “vital interest” for the United States (the “Carter Doctrine“), no one should be surprised by the numerous wars and bombing campaigns waged by the US in the region. 

Sometimes, though, the role of fossil fuels in causing wars is more subtle than just someone trying to steal someone else’s resources. Some wars are not a question of scarcity, but of abundance. That may be the case of the war in Ukraine that we can interpret as a direct result of the impact of the fracking technologies in the United States. Fracking led to a reversal of the declining production trend that had been ongoing for about 40 years. The result was that the American producers could reappear in the global market as exporters of both oil and gas. 

With an excess productive capacity, the American producers started looking for new markets, worldwide. A potentially lucrative one was Western Europe. The problem was that the European market was in the hands of Russian producers who had established a network of pipelines that could export natural gas at a low cost in Europe. “Liquefied natural gas” (LNG) from the US just could not be competitive with pipeline gas because of the costs of liquefaction, transport, and re-gasification. 

In the manuals of economics, it is said that in a free market the cheaper product always wins against the more expensive one. In the real world, though, markets are far from being free. As every mafia boss knows, the lucrative cocaine market is not just a question of prices: you have to defend your turf. And not just that: sometimes, you can expand it by means of friendly (or not-so-friendly) interactions with neighboring competitors. It is sometimes called “arm-twisting,” but it may involve much more painful methods. Similar considerations hold for fossil fuels, a commercial field in which states normally behave exactly like mafia families. 

During the past few months, we saw a not-so-friendly interaction in which Russia has been expelled from the natural gas market in Europe. The war in Ukraine is mostly a sideshow: the real thing is natural gas and the critical point has been the sabotage of the Nord Stream pipeline. Whoever did it, it was a clear message to everybody: Russian gas will not flow to Europe anymore. The European gas market is now the turf of another mafia family. 

With drugs, if you are just a customer, changing your pusher may be completely painless and you may not even realize that your cocaine is now supplied by a different mafia family. With fossil fuels, though, turf wars are normally accompanied by market turbulence. In this case, the Europeans are facing the need of paying for their LNG several times more than they were used to pay for the Russian gas. And it is not even clear whether the American production will be able to completely replace the Russian one. So far, the US exports are far from sufficient to replace Russian gas in Europe. The imports to Europe should increase by about a factor of 30. Maybe not impossible with the fracking “miracle,” but not something that can be done in a short time. 

(images courtesy Giuseppina Ranalli)

So, we are looking at a situation of both scarcity and high prices of gas in Europe. That’s going to have consequences, and not just having European citizens staying in the dark and in the cold this winter. The big question is: will the European industrial system survive the crisis? That’s not obvious at all and the Americans may soon discover that they have destroyed the market they conquered.  With energy prices five to ten times higher than before, European products may not be competitive any longer in the global market. That implies the collapse of the European industrial system and the return of the continent to the agricultural economy of a couple of centuries ago. That would also imply a certain reduction in the European population but, hey, these are the laws of the market! And, as Ms. Nuland clearly explained to us not long ago, who cares about Europeans?

Below, an article that I recently published in the Italian newspaper “Il Fatto Quotidiano” 

From the “Fatto Quotidiano” of 29 September 2022

by Ugo Bardi

The convulsive events on the global geopolitical scene continue to take us by surprise. What is behind the destruction of the Nord Stream pipeline? We can’t say who did it, but one thing is certain: the conflict we are seeing is a war for resources much more than it is a warring war. To understand what is happening, we need to go back in time to find the roots of the current situation. 

In the book “Sea and Sardinia” (1921) the author, DH Lawrence, tells us how a favorite subject in the conversations among the Italians of the time was insulting the English. It was because English coal had become expensive, something that the Italians attributed to the wickedness of the English. The term “Perfidious Albion” had been invented a long time before, but was beginning to become fashionable at that time. 

The history of English coal in Italy illustrates the factors still at play in the functioning of the Italian economy today. Italian industry needs energy, but there are not enough fossil energy resources in Italy to supply a functioning industrial system. Thus, the industrial revolution arrived in Italy in the 19th century brought by English coal, imported by sea. But, with the end of the First World War, British coal had suddenly become much more expensive than before. It wasn’t because the British were perfidious (maybe a little, but no worse than many others), it was because of depletion. As the British economist William Jevons predicted decades earlier, the costs of coal mining were rising. As a consequence, the British coal production reached its peak in 1914, and then it began an irreversible decline. In the 1930s, coal shortages forced Italy into a deadly embrace with Germany – which could still produce it at low prices. We all know the results. 

Having emerged half-destroyed from the Second World War, the Italian industry was able to rebuild itself thanks to the US oil provided with the Marshall Plan. Even for oil, however, depletion had to be felt sooner or later. In 1970, the United States reached its production peak. The first major “oil crisis” followed, but the global market was able to offset the decline with other sources. Meanwhile, natural gas was rapidly becoming a low-cost alternative to oil. Gradually, Europe turned to import gas from Russia via pipelines. With this relatively low-cost gas, the Italian industrial system could survive.

In the last 10 years, however, things have changed dramatically. With the technology of “fracking”, the United States has managed to reverse the decline in its production of both gas and oil. As a result, they have re-entered the world market as exporters. This explains many things: the oil and gas market is strategic in the great game of world domination and, in this game, there are no rules. Pushing Russia out of the Western European market makes it possible for American industry to take back a market they had long lost. That’s what’s happening. The sabotage of the Nord Stream pipeline is a signal that Russian gas will no longer reach Europe. 

And now? In this global strategy game, everything is always changing. It is true that imports from the United States are now able to replace Russian gas in Europe (apart from requiring a substantial increase in US production, perhaps not impossible). But it is also true that importing natural gas from the US is only possible in the form of liquid natural gas and this involves high costs, as well as a heavy contribution to global warming due to the inevitable losses in the process. To this is added a fundamental unknown: how long will the United States be able to maintain its production at the levels needed to supply Europe? 

Fracking has been seen as a miracle technology, but it isn’t. As always, forecasts are difficult, but we can be sure of one thing: no mineral resource is infinite and sooner or later we will face the peak of fracking gas. And it all starts all over again with the frantic search for energy to keep the industrial society alive. 

In Italy, we are in a position of extreme weakness. We lack the infrastructure (regasifiers) necessary to import liquefied gas. We can build them, but it will take time and, in the meantime, the Italian industry could suffer irreparable damage. It is not certain that when we have regasifiers there will be sufficient gas available to import. Not only that, but the Italian industry could find itself not competitive on the world market if it has to bear the high costs of liquid natural gas. In both cases, we could be facing the end of the industrial cycle of the Italian economy, about two centuries after its beginning. The problem is that, before the industrial revolution, there were fewer than 20 million inhabitants in Italy and famines were not uncommon. 

It seems clear that for us there are no other ways out than a decisive shift toward renewables, already today much cheaper than any fossil fuel and capable of completely replacing them. Politicians have not yet understood this, but it would protect us from new crises of energy availability and from blackmail by producers. But it’s not something that can be done overnight. Only a diplomatic solution to the conflict in Ukraine would give us the time needed to build a new infrastructure based on renewables. Can we make it? Nothing prevents us from trying. 

  

Originally appeared on The Seneca Effect Read More

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