Diminishing Returns Threaten World Economic Stability

By Gail Tverberg - May 30, 2025,

• The world economy is facing a predicted contraction due to physical limits related to resource extraction and diminishing returns in various areas, including energy and minerals.
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• Current economic indicators, such as high debt levels, falling oil and coal production, and rising inflation, suggest an impending downturn that will affect global living standards and government stability.
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• As existing economic systems falter, new economic models are expected to emerge, though the transition period will likely be marked by financial instability, job losses, and a decrease in overall prosperity.

I predict that the world economy will shrink in the next 10 years. I think that this is bound to happen because of energy and debt limits the world economy is hitting. There are a variety of other factors involved, as well.

In this post, I will try to describe the physics-based limits that the economy is facing, related to diminishing returns of many kinds. The problem we are facing has sometimes been called “limits to growth,” or “overshoot and collapse.” Such changes tend to lead to a loss of “complexity.” They are part of the way economies evolve. I would also like to share some ideas on the changes that are likely to occur over the coming decade.

[1] The world economy is a tightly integrated physics-based system, which is experiencing diminishing returns in far more areas than just oil supply.

When extraction of a mineral takes place, usually the easiest (and cheapest) portion of the mineral deposit is extracted first. After the most productive portion is removed, the cost of extraction gradually increases. This process is described as “diminishing returns.” Generally, more energy is required to extract lower quality ores.

The economy is now reaching diminishing returns in many ways. All kinds of resources are affected, including fossil fuels, uranium, fresh water, copper, lithium, titanium, and other minerals. Even farmland is affected because with higher population, more food is required from a similar amount of arable land. Additional-cost efforts such as irrigation can increase food supply from available arable land.

The basic problem is two-fold: rising population takes place while the easiest to extract resources are depleting. The result seems to be Limits to Growth, as modeled in the 1972 book, “The Limits to Growth.” Academic research shows that problems such as those modeled (sometimes referred to as “overshoot and collapse”) have been extremely common throughout history.

Precisely how this problem unfolds varies according to the specifics of each situation. Growing debt levels and increasing wage disparity are common symptoms before collapse. Governments become vulnerable to losses in war and to being overthrown from within. Epidemics tend to spread easily because high wage disparity leads to poor nutrition for many low-wage workers. Dr. Joseph Tainter, in his book, “The Collapse of Complex Societies,” describes the situation as the loss of complexity, as a society no longer has the ability to support some of the programs it previously was able to support.

At the same time the existing economy is failing, the beginnings of new economies can be expected to start. In some sense, economies “evolve,” just as plants and animals evolve. New economies will eventually replace existing ones. These changes are a necessary part of evolution, caused by the physics of the biosphere.

In physics terms, economies are dissipative structures, just as plants, animals, and hurricanes are dissipative structures. All dissipative structures require energy supplies of some type(s) to grow and remain away from a dead state. These structures do not “live” endlessly. Instead, they come to an end and are often replaced by new, slightly different, dissipative structures.

[2] Over the next 10 years, the general direction of the economy will be toward contraction, rather than growth.

There are many indications that the world economy is hitting a turning point because of rising population and diminishing returns with respect to resource extraction. For example:

[a] Debt levels are very high in the US and other countries. A rising debt level can temporarily be used to pull an economy forward without adequate energy supplies because it indirectly gives workers and businesses more spendable income. This income can be used to work around the lack of inexpensive energy products of the preferred types in a variety of different ways:

• It can allow consumers to afford a higher price for existing energy products, if the additional funds get back to customers as higher incomes or lower taxes.
• It can allow businesses to find more efficient ways of using resources, such as ramping up international trade or building more efficient vehicles.
• It can allow the development of new energy products, such as nuclear power generation and electricity from wind and solar.

What we are finding now is that these new approaches tend to encounter bottlenecks of their own. For example, oil supply is sufficiently constrained that the current level of international trade no longer seems to be feasible. Also, wind and solar don’t directly replace oil; electricity based on wind turbines and solar panels can lead to blackouts. Furthermore, diminishing returns with respect to oil and other resources tends to get worse over time, leading to a need for ever more workarounds.

If at some point, extraction becomes more constrained and workarounds fail to provide adequate relief, added debt will lead to inflation rather than to hoped-for economic growth. Higher inflation is the issue that many advanced economies have been struggling with recently. This is an indication that the world has hit limits to growth.

[b] Because of low oil prices, companies are deciding to cut back new investments in extracting oil from shale, and likely elsewhere.

Figure 1. Brent equivalent oil prices, in 2024 US dollars, based on a combination of indications through 2023. Sources include historical oil prices in 2023$ from the 2024 Statistical Review of World Energy, published by the Energy Institute; the increase in average Brent spot price from 2023 to 2024, published by the US EIA; and the US Consumer Price Index for Urban consumers.

Figure 1 shows that oil prices rise and fall; they don’t rise endlessly. They rose after US oil production hit its first limits in 1970, but this was worked around by ramping up oil production elsewhere. Prices rose in the 2003 to 2008 period and then fell temporarily due to recession. They returned to a higher level in 2011 to 2013, but they have settled at a lower level since then.

One factor in the price decline since 2013 has been the production of US shale oil, adding to world oil supply. Another factor has been growing wage disparity, as workers from rich countries have indirectly begun to compete with workers from low-wage countries for many types of jobs. Low-wage workers cannot afford cars, motorcycles, or long-distance vacations, and this affordability issue is holding down oil demand.

US oil production from shale is in danger of collapsing during the next few years because prices are low, making new investment unprofitable for many producers. In fact, current prices for oil from shale are lower than shown on Figure 1, partly because US prices are a little lower than Brent, and partly because prices have fallen further in 2025. The recent price available for US WTI oil is only about $62 per barrel.

[c] World per capita coal production has fallen since 2014. A recent problem has been low prices.

Figure 2. World coal production through 2023 based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

Transportation costs are a major factor in the delivered price of coal. The reduced production of coal is at least partly the result of coal mines near population centers getting mined out, and the high cost of transporting coal from more distant mines. Today’s coal prices do not seem to be high enough to accommodate the higher costs relating to diminishing returns.

[d] In theory, added debt could be used to prop up oil and coal prices, but debt levels are already very high.

Besides the problem with inflation, mentioned in point [a], there are problems with debt levels becoming unmanageably high.

Figure 3. Figure from page 10 of The Long-Term Budget Outlook 2025 to 2055, published in March 2025 by the US Congressional Budget Office.

Figure 3 shows US government debt as a ratio to GDP. If we look at the period since 2008, there was an especially large increase in debt at the time of the 2007-2009 Financial Crisis and the 2020 Pandemic. The debt level has become so high that interest on the debt is likely to require tax revenue to rise endlessly. The underlying problem is needing to pay interest on the huge amount of outstanding debt.

Putting together [a], [b], [c], and [d], the world has a huge problem. As the world economy is currently organized, it is heavily dependent on both oil and coal. Oil is heavily used in agriculture and in transportation of all kinds (cars, trucks, trains, airplanes, and ships). Coal is especially used in steel and concrete making, and in metal refining. We don’t have direct replacements for coal and oil for these uses. Wind and solar are terribly deficient at their current state of development.

The laws of physics tell us that, given the world’s current infrastructure, a reduction in the availability of both crude oil and coal will lead to cutbacks in the production of many kinds of goods and services around the world. Thus, we should expect that GDP will contract, perhaps for a long period, until workarounds for our difficulties can be developed. Today’s wind turbines and solar panels cannot solve the problem for many reasons, one of which is that fact that production and transport of these devices is dependent upon coal and oil supplies.

Thus, without adequate oil and coal to meet the needs of the world’s growing population, the world economy is being forced to gradually contract.

[3] Overall living standards can be expected to fall rather than rise during the next decade.

A recent article in the Economist shows the following chart, based on an analysis by the United Nations:

Figure 4. Chart showing global average “Human Development Index,” as calculated by the United Nations, in the Economist.

Figure 4 shows the trend in the Human Development Index as level in 2023-24. I expect that the trend will gradually shift downward in 2024-2025 and beyond. Modern advances, such as the availability of potable water in homes and the availability of electricity 24 hours per day, will become increasingly less common.

The Economist article displaying Figure 4 notes that, so far, most of the drop in living standards has happened in the poorer countries of the world. These countries were hit harder by Covid restrictions than rich countries. For example, the drop in tourism had a greater impact on less advanced countries than on rich countries. Poor countries were also affected by a decline in export orders for luxury clothing.

Outside of poor countries, young people are already finding it difficult to find jobs that pay well. They are often burdened with debt relating to advanced education, making it difficult for them to have the same standard of living that their parents had. This trend is likely to start hitting older citizens, as well. Jobs will be available, but they won’t pay well. This problem will affect both young and old.

[4] Governments will be especially vulnerable to cutbacks.

History shows that when overshoot and collapse occur, governments are likely to experience severe difficulties, indirectly because many of their citizens are getting poorer. They require more government programs, but if wages tend to be low, the taxes they pay tend to be low, too.

Unfortunately, the kinds of cutbacks being undertaken by the Department of Government Efficiency (DOGE) are very much necessary to get payments by the US government down to a level that can be supported by taxes. Regardless of how successful the current DOGE program is, I expect a huge reduction in the number of individuals on the payroll of the US government, perhaps by 50% to 75%, in the next 10 years. I also expect major cutbacks in the funding for outside organizations, such as universities and the many organizations DOGE has targeted.

At some point, the US government will need to reduce or eliminate many types of benefit payments made now. One approach might be to try to send many kinds of programs, such as job loss protection, Medicaid, and Medicare, back to the states to handle. Of course, the states would also have difficulty paying for these benefits without huge tax increases.

[5] Ten years from now, universities and colleges will enroll far fewer students.

I expect that university enrollments will fall by as much as 75% over the next 10 years, partly because government funding for universities is expected to fall. With less funding, tuition and fees are likely to be even higher than they are today. At the same time, jobs for university graduates that pay well will become less available. These considerations will lead fewer students to enroll in four-year programs. Shorter, more targeted education teaching specific skills are likely to become more popular.

There will still be some high-paying jobs available, requiring university degrees. One such area may be in finding answers to our energy and resource problems. Such research will likely be carried out by a smaller number of researchers than are active today because some current areas of research will be discarded as having too little potential benefit relative to the cost involved. Any approach considered will need to succeed with, at most, a tiny amount of government funding.

High paying jobs may also be available to a few students who plan to be the “wheeler-dealers” of the world. Some of these wheeler-dealer types will want to be the ones founding companies. Others will want to run for public office. They may be able to succeed, as well. They may want to study specialized tracks to advance their career goals. Or they may want to choose institutions where they can make contacts with people who can help them in pursuing their career goals.

For most young people, I expect that four-year university degrees will increasingly be viewed as a waste of time and money.

[6] In a shrinking economy, debt defaults will become an increasing problem.

A growing economy is very helpful in allowing financial institutions to prosper. With growth, future earnings of businesses tend to be higher than past earnings. These higher earnings make it possible repay both the borrowed amount and the required interest. With growth, there is little need to lay off employees. Thus, the employees have a reasonable chance to repay mortgage loans and car loans according to agreed-upon terms.

If an economy is shrinking, overhead becomes an ever-larger share of total revenues. This makes profits harder to achieve and may make it necessary to lay off employees. These laid-off employees are more likely to default on their outstanding loans. As debt defaults rise, interest rates charged by lenders tend to rise to compensate for the greater default risk. The higher interest rates make debt repayment for future borrowers even more difficult.

All these issues are likely to lead to financial crises, as debt defaults become more common.

[7] As debt defaults rise, banks tend to fail. This can lead to hyperinflation or deflation.

In a shrinking economy, the big question when banks fail is, “Will governments bail out the banks?”

If governments bail out the failing banks, there is a tendency toward inflation because the bailouts increase the money supply available to citizens, but not the quantity of goods available for purchase. If enough banks fail, the tendency may be toward hyperinflation–way too much money available to purchase very few goods and services.

If no government bailouts are available, the tendency is toward deflation. Without bailouts, the problem is that fewer banks are available to lend to citizens and businesses. As a result, fewer people can afford to buy homes and vehicles using debt, and fewer businesses can take out loans to purchase needed supplies. These changes lead to less demand for finished goods. This change in demand can indirectly be expected to affect commodity prices, as well, including oil prices. With low prices, some suppliers may go out of business, making any supply problem worse.

Regardless of whether bailouts are attempted or not, on average, citizens can be expected to be getting poorer and poorer as time goes on. This occurs because with a shrinking economy, fewer goods and services will be made. Unless the population shrinks at the same rate, individual citizens will find themselves getting poorer and poorer.

[8] Expect more tariffs and more conflicts among countries.

Without enough oil for transportation, the quantity of imported goods must be cut back. A tariff is a good way of doing this. If one country starts raising tariffs, the temptation is for other countries to raise tariffs in return. Thus, the overall level of tariffs can be expected to rise in future years.

Without enough goods and services for everyone to maintain their current standard of living, there will be a definite tendency for more conflict to occur. However, I doubt that the result will be World War III. For one thing, the West seems to have inadequate ammunition to fight a full-scale conventional war. For another, the nuclear bombs that are available are valuable for providing fuel for our nuclear power plants. It makes no sense to use them in war.

[9] Expect an increasing share of empty shelves, as time goes on.

High tech goods are especially likely to disappear from shelves. Replacement parts for automobiles may also be difficult to find, especially before an aftermarket of locally manufactured parts appears.

[10] Interest rates are likely to stay at their current level or increase to a higher level.

The high level of borrowing by governments and others makes lenders reluctant to lend unless the interest rates are high. It should also be noted that current interest rates are not high relative to historical standards. The world has been spoiled in recent years with artificially low interest rates, made possible by Quantitative Easing and other manipulations.

[11] Clearly, this list is not exhaustive.

The world economy has gone through two major disruptions in recent years, one in 2008, and one in 2020. Very unusual changes such as these are quite possible again.

We don’t know how soon new economies will begin to evolve. Eric Chaisson, a physicist who has researched this issue, says that there is a tendency for ever more complex, energy-dense systems to evolve over time. This would suggest that an even more advanced economy may be possible in the future.

By Gail Tverberg via Our Finite World

Evolving U.S.-Canada Relations Spark Shift in Strategy

By Rystad Energy - May 31, 2025

• Recent shifts in US policy have caused Canada to reevaluate its long-standing relationship with its southern neighbor, leading to a focus on economic independence and trade diversification.
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• Canadian federal politics have responded to US actions through tariffs and election results, reflecting a national desire for greater autonomy and a need to address regional economic concerns.
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• Infrastructure projects and trade relationships are being reassessed in Canada to reduce dependence on the US, with an emphasis on developing internal resources and fostering new international partnerships.
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For years, the US has been a stalwart ally to Canada, peacefully sharing the longest international land border in the world. The US and Canada have worked together to develop valuable north-south integration of energy infrastructure that benefits both nations and have partnered to develop common specifications and standards for many products, including petroleum fuels and passenger vehicles.

Recent political events have, however, placed Canada and the US at the cusp of a critical shift in their long and prosperous relationship. The future of the relationship may not yet be clear, but what has become apparent is that Canada is taking proactive steps to be master of its own destiny and reduce dependence on its southern neighbor to achieve prosperity amid the challenges imposed by the current US administration. Some of these actions may be to the detriment of both nations, but perhaps more so to the US. True to their form, Canadians seem to be saying – we are terribly sorry but now must look out for ourselves.

A brief history

Canada and the continental US have been in existence in their current form since 1793 when Britain ceded land to the 13 British North America colonies that led an insurrection known as the American Revolution.  The border between the United States of America and what remained of British North America was established by the Treaty of Paris that ended the American Revolution. The border was challenged again during the War of 1812 when the US invaded Canada. This war ended in a stalemate and The Treaty of Ghent, signed in 1814, re-established the border as effectively unchanged. British North America eventually became Canada in 1867 when the confederation was formed.

Since the reconfirmation of the international border in 1814, the relationship between the US and Canada has largely been one of little contention. Some examples of this cooperation are:

• Harmonization of vehicle standards to allow ease of cross-border trade and integrated manufacturing
• Alignment of quality specifications for many fuels
• Harmonized system on hazardous chemicals classification and labelling
• Cooperation on food safety standards and food supply-chain certification

Canada and the US are deeply connected in many ways

Beyond cooperation on standards, Canada and the US are deeply connected by infrastructure, cross-border travel and trade and cultural similarities. From an infrastructure and trade perspective, Quebec, Ontario and British Columbia all have a strong tie to the US, exporting vastly more electricity to the south than what they provide to neighboring provinces. The Great Lakes waterway is a shared resource that enables trade between Canada’s eastern provinces and the US Northeast.  Our railway system is closely linked, including CPKC, the only transnational railway in North America connecting Canada, the US, and Mexico. Canada’s petroleum industry has benefitted from having the US as a demand center with most of the nation’s crude oil being exported south via shared infrastructure that has been developed over decades. Western Canada’s natural gas benefits from market access to the Pacific and Rockies regions in the US. The US also benefits from this connectivity through the reliable and ratable supply of energy.  

Canadians are a boon to the US tourism industry. In 2024, according to the US International Trade Administration (ITA), 20 million Canadian residents travelled to the US, in effect half of Canada’s population. Perhaps more important, though, is that Canadian visitors comprised almost 30% of the 72 million US international visitor arrivals. For many Canadians, the US offers ease of access, a diversity of travel opportunities from urban destinations to vast tracts of unspoiled wilderness, and an escape from bitter boreal winters. 

While culturally very similar, there are some key differences between Canada and the US that makes each nation unique. Canada has always valued a strong social safety net, aiding those in need through government programs while the US values Individual freedom and charitable acts in lieu of government programs. Canadians value our publicly funded health care system and recognize that health outcomes are generally better and at a lower cost to society. Gun ownership is strictly controlled in Canada, with the benefit of having vastly lower per capita gun-related deaths. Access to high quality grade-school education is also valued in Canada, with teachers generally well-paid and schools funded equally based on student population. In sum, Canada has more socialistic values than the US but with perhaps less individual freedom. The gap in political philosophy between the two looks set to be widening further.

Is the Canada-US relationship permanently changed?

US President Donald Trump’s administration appears to be taking a vastly different stance with regards to its relationship with Canada, raising concerns over prosperity and national security for many Canadians. The ‘reciprocal tariffs’ proposed by the US – under the guise of stopping illegal immigration and the flow of fentanyl into the US – puts Canada’s economic growth at risk. Canadians struggle to understand how the US, Mexico, and Canada Agreement (USMCA) negotiated by the former Trump administration is no longer relevant. They also wonder how the almost inconsequential quantity of fentanyl entering the US from Canada could constitute a national emergency that warrants tariffs the likes of which have never been seen before. 

The rhetoric on making Canada the 51st state has turned its citizens’ economic angst over the tariffs to anger. The combination of the tariffs and the threat of annexation make some Canadians view the US as waging economic warfare against it. Indeed, former Prime Minister Justin Trudeau publicly stated that President Trump’s threat to annex Canada is real. Canada has vast reserves of critical minerals, desirable access to the north, and an abundant supply of fresh water, all which make it valuable for future development. Canadians recognize the country lacks the might against an imperialistic US to defend its sovereignty if faced with economic warfare, or worse yet an insurrection from the south. 

Canadians are taken aback by the abrupt shift in US diplomacy and have had its sense of economic and national security stripped bare. Canada has benefited from having the world’s largest economy on its doorstep and perhaps has not had to work as hard as other nations to develop trade relationships and national defense programs to ensure growth and security.  While Canadians may be upset with the current stance of the US federal administration, many see the recent events as an opportunity to rebuild the nation into the confederation it was originally intended to be. 

All Canadians are aligned in the hope that the relationship with the US will continue to remain cordial and ultimately return to one of mutual benefit. Still, it would be naïve for Canada to not diversify its trading portfolio and fundamentally change its economic exposure to the US, regardless of the diplomatic relationship returning to status quo. The US administration’s current actions are not aligned with Canada’s understanding of the USMCA and their historical relationship, but the ties between the two are not yet at an impasse. The US will always remain an important neighbor and Canadians hold no ill will for their American neighbors. Still, Canada needs to forge a different path.

First steps towards more Canadian economic autonomy

Canada has taken steps to respond to the US tariffs and the 51st state rhetoric. The federal government imposed 25% reciprocal tariffs on $30 billion of key goods from the US to target states that predominantly supported the Republican ticket, from orange juice and citrus fruit to motorcycles and whiskey. Some provinces removed all US alcohol from government store shelves to boycott the US wine and liquor industry. Some have adopted a buy-anything-but-American strategy, and grocery stores are helping by adding in-store labels to indicate the Canadian alternatives. Perhaps most notable, many are choosing to avoid traveling to the US for business and tourism. Canada’s land border crossings into the US are down 35% in March 2025 versus last year while air travel to the US is down 14%, according to Statistics Canada.  Steeper declines are expected for April through August as Canadians choose to spend their travel budgets either within Canada, or to destinations other than the US.

So far, the measures taken by the Canadian government and by individual residents has had an impact on US exporters of goods. Canadian grocery retailer Loblaws reports a 10% increase in sales of Canadian goods so far, while Sobeys Inc. owner Empire Company Ltd. reports that the share of US goods purchases is “rapidly dropping”, according to a report in the Globe and Mail.  US tourism is taking a hit with much fewer Canadians booking tours. US suppliers of whiskey, cotton and other materials have reported losing lucrative deals with Canadian retailers and manufacturers because of the tariffs. At least one US governor, Gavin Newsom of California, is attempting to court Canadian tourists to return to his state using a social media campaign. 

Canadians are emboldened by the noticeable impact that its vast but sparsely populated nation has had so far. The economy and population are both about one-tenth the size of the US, but its land mass is slightly larger and its access to resources is immense. The trade war is not yet over, and while the current US executive branch has authority from Congress and the Supreme Court to impose the broad-brush tariffs, those levies will remain a risk despite any advancement of negotiations.

Canadian federal politics speaks volumes

Canada was due for a federal election no later than October 2025. It seemed a guarantee that the Conservative Party of Canada (CPC) led by Pierre Poilievre would win. After over nine years of a Liberal minority government, Canadians were ready for a change. The CPC platform of smaller government, lower taxes and less regulation resonated with Canadians, while the Trudeau Liberals were viewed as anti-oil, anti-gas and anti-development. Under Trudeau’s guidance, oil infrastructure projects were challenged, with much harsher rules on environmental and greenhouse gas impacts (Bill C-69). The Oil Tanker Moratorium Act was enacted, which prevents the shipment of oil along British Columbia’s west coast, the emissions costs under the Output Based Pricing System (OBPS) and consumer’s carbon tax were set to increase to $170 per tonne by 2030, and the Clean Fuels Regulation (CFR) was introduced.  The oil sector emissions cap was also proposed but not yet made law. The challenging regulatory environment certainly led to several key energy and infrastructure projects being cancelled, particularly liquified natural gas export facilities and interprovincial petroleum pipelines.

When President Trump was inaugurated, though, the Canadian political landscape witnessed a sea change. Mark Carney was nominated the head of the Liberal Party to replace Justin Trudeau and called a snap election for 28 April. Carney is the former governor of the Bank of Canada and the Bank of England and is recognized for his experience on economic policy. Meanwhile, Poilievre’s populist rhetoric was sounding a bit too much like that of the new US administration and became viewed as a risk to Canada’s place in the world stage and its ability to protect its economy and borders from the might of the US. In a matter of weeks, the polls shifted to show a Liberal minority government as the likely outcome. Indeed, the Liberals ended up winning 170 electoral districts, only two shy of a majority. 

The Canadian federal election results sent several key messages to the politicians. Poilievre lost his seat in his home. The federalist Bloq Quebecois gave up 13 seats, while the New Democratic Party (NDP) lost 17 seats. The Liberals gained 16 seats, and the CPC gained 15 seats. The Bloq losing 37% of their seats, mainly to the Liberals, sends a clear message to the province of Quebec that federalist politics are not supported at this time of national crisis. The NDP losing 70% of its seats implies more pragmatism with respect to greenhouse gas emissions regulations is needed to lower costs for consumers and to create an economic environment that is friendlier to resource extraction and infrastructure investment.

The CPC gains were primarily made in Eastern Canada, reflecting a clear shift towards the center. The Liberal Party’s platform, spearheaded by Mark Carney, appeased more swing voters to retain the majority of Eastern Canada and in turn caused Poilievre to lose his seat in his home riding in Ottawa. Among those is a generational divide, with young voters who are concerned about housing unaffordability, crime and the cost-of-living coalescing around the Conservatives. It's a reversal from 2015, when youth voted in record numbers, helping sweep Carney's predecessor Justin Trudeau to power.

The country provincial leaders appear united once again as a confederation to support the economic recovery of Canada in the face of severe challenges from the US. Infrastructure projects thought to be long dead are now being discussed again. Oil pipelines across the nation, liquified natural gas (LNG) export facilities, mining developments and the removal of interprovincial trade barriers are all topics that are again on the table. The CPC supporters are, however, concerned that this new government is simply a continuation of past Liberal governments, and the development of the energy economy will continue to face significant barriers.

Is it an alienation of the West, energy industry or none of the above?

Canadian federal elections almost always show a clear political division with British Columbia often supporting the leftist parties (NDP and Green Party), Alberta and Saskatchewan invariably being deeply CPC, and the rest of the country, save Quebec, being mixed.  Quebec oscillates between Liberal and Bloq, the Bloq being a federalist party that only runs candidates in Quebec. 

With the re-election of the Liberal Party, there is a vocal group in Western Canada that is decrying Western alienation and is raising the alarm on the beleaguered energy industry.  The previous Liberal government adopted strong greenhouse gas (GHG) emissions reduction policies. Western Canada’s primary source of revenue is oil and gas and saw these federal policies as particularly restrictive to economic growth and are likely fearing more of the same.

The province of Alberta contains perhaps the most vocal protest against the federal policies and the provincial conservative party is now positioning for a referendum on Alberta’s separation from Canada. While separation is unlikely to be supported by a majority of Albertans, there is a deep level of frustration at the inability to develop energy projects because of federal policies even though the sector is a provincial matter. Prime Minister Carney has a huge task ahead to qu
ell the frustration to ensure the conservative vote in Alberta sees economic opportunity. 

Carney struck down the consumers’ carbon price on 1 April, thus lowering the cost of all fuels for homes and vehicles. The industrial pricing policy is still in place, and he has discussed strengthening it, which may make Canada an even more challenging country to invest in when it comes to major resource extraction projects. Before the election, Carney indicated he will not repeal the controversial Bill C-69, the federal impact assessment act that has been blamed for stalling many energy and infrastructure projects and is particularly contentious with Alberta’s conservative population. 

Even so, if Carney is to be successful in his goal of reinvigorating Canada’s economy and developing new trade relationships with countries beyond the US, infrastructure will be needed.  Canada is a large country with ocean access on three borders and no cross-Canada infrastructure other than roads and rail. He has stated his commitment to the expedited approval of infrastructure projects and included the concept of an energy corridor across the nation in his platform. Carney’s latest comments now indicate a willingness to change environmental legislation to enable investment in the country’s economic growth, perhaps a sign that his stance on Bill C-69 may be softening.

Actions Canada can take to decouple itself from the US as its dominant trade partner will require significant investment. The federal government can support this development by reducing regulatory burden and partnering with the provinces and First Nations on development corridors and approval processes. The opportunities are boundless and include:

• Petroleum pipelines to support the growth of crude oil supply and the export of crude oil, natural gas liquids (NGLs) and refined petroleum products to foreign markets.
• Upstream natural gas development, natural gas pipelines and liquefaction facilities to provide export outlets for Canada’s vast natural gas reserves.
• Critical mineral mining projects to harvest Canada’s resources.
• Rail infrastructure to debottleneck transportation across the nation to enable higher volumes of dry bulk exports.
• Polyethylene and polypropylene production facilities to compete in export markets.
• East/west electricity transmission to decouple exports from the US and keep made-in-Canada power in Canada.

Canada has cautious optimism for the future

While Canadians hold no ill will for their friends to the south, the political environment has shifted. The threat to its sovereignty and its economy from the current US executive branch has united Canada more than any event in the past excepting the World Wars.    

The strong alignment in economic development across all provinces in the face of external risks is arming Canada with a new purpose. Made-in-Canada solutions and new trade relationships are now being sought, which could usher in a new era of economic prosperity. It is Canada’s time to grab its opportunities to ensure a bright future for the entire confederation. 

By Rystad Energy

 

China Schools the West on EVs

By Irina Slav - May 30, 2025

• Chinese EV makers like BYD are outperforming Western rivals on both price and quality.
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• Foreign automakers have lost significant market share in China, as local manufacturers now dominate over two-thirds of the market.
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• The EU is adopting China’s strategy of mandated knowledge sharing, aiming to access Chinese EV know-how while imposing tariffs to protect local producers.
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In April this year, China’s BYD hit a first--it sold more cars in Europe than Tesla. Of course, one reason for this was EV fans’ reaction to Elon Musk’s political endeavors, but another was that BYD’s EVs were simply better and more affordable. And now Western carmakers want to learn from BYD and other Chinese sector players how to make their electric cars more attractive—and affordable—for buyers.

Caixin Global reported this week that non-Chinese carmakers were “tapping into local expertise and supply chains in a bid to regain lost ground.” The reason is that local carmakers have come to completely dominate the Chinese car market with their EVs, eating into foreign majors’ market share. It’s not just Tesla. It’s everyone that’s in danger of losing market share to Chinese manufacturers of electric cars—just two decades after they taught those Chinese car manufacturers how to make good cars.

The Financial Times related these developments in an in-depth analysis from April. It cited a German car engineer joking about how 20 years ago, Chinese cars were pretty much copy-paste versions of the European flagship models. Now, European car companies are trying to develop features that their Chinese rivals already have in their vehicles. As with wind and solar equipment, Chinese EVs are both better and cheaper than the European—and American—alternatives.

This is an obvious problem for the West, which has realized that Chinese competition is dangerous for local players in more than one industry. In response to that danger, the European Union shunned originality in favor of import tariffs on Chinese electric vehicles, essentially sentencing itself to forever subsidies for local EVs because carmakers have struggled to lower costs below a certain point that is still higher than the costs for internal combustion vehicles. Yet the carmakers themselves want to learn from the Chinese—so the EU has obliged, taking a page out of China’s playbook.

For decades, Chinese industrials have learned how to do things better by mandating expertise sharing from foreign companies with ambitions for the Chinese market. Now, this is exactly what the EU wants to do with BYD and its sector players: require them to provide access to their know-how to European car companies.

Since 2020, non-Chinese automakers have lost a third of their market share in China to local manufacturers. This is just five years in which Chinese makers of electric cars have managed to improve their technology so much that over two-thirds of car sales in the country come from local manufacturers, according to Caixin. The Germans are second, with a 13.2% share, followed by the Japanese, with a share of 9.4%, and U.S. carmakers with a market share of 5.8% in China.

Of course, an easy explanation of how this happened would be one that focuses on Chinese state subsidies for all things energy transition, notably including the electrification of transport. The Chinese government has literally thrown billions at carmakers to make EVs. It has also encouraged more buyers to go electric through various incentives. But this is not the whole story.

The whole story must include the fact that Chinese carmakers simply became very good at making electric cars while in Europe, their peers wondered how many women to appoint to their boards and how to cut their emissions. China is currently phasing out its subsidy programs for EVs. Their goal has been accomplished; EVs have gone from niche to mainstream. Europe, meanwhile, tried to phase the subsidies out, and sales immediately crashed—because the cars were too expensive for what they offered. This is the root cause of the problem with EV uptake. And it’s Chinese carmakers that can help solve it.

It would be wise to bear something in mind, though. Chinese industries sometimes overdo the growth thing, and it all ends in tears. First, it was the property sector. Now, it could be the EV makers’ turn. A large BYD dealer in Eastern China just went bust. Chinese EV makers may well need the international market as much as European carmakers need Chinese EV expertise. It could be a match made in Heaven.

By Irina Slav for Oilprice.com

 

U.S. Ethane Exports Face Licensing Hurdles After China Lifts Tariffs

By Tsvetana Paraskova - May 30, 2025

China has waived a short-lived 125% tariff on U.S. ethane imports, but American shipments to China could be hindered by a U.S. requirement of export licenses.

Ethane, a natural gas liquid primarily extracted from raw natural gas during processing, is mainly used as a feedstock for ethylene production, one of the most important building blocks in the petrochemical industry.

China has waived a 125% tariff on U.S. ethane imports it had levied in early April.

The tariff removal led EIA to expect strong growth in U.S. ethane production and exports. EIA expects the United States to produce nearly 3 million barrels per day of ethane this year and slightly more than 3 million barrels per day of ethane next year, up from 2.8 million barrels per day in 2024.

Most of this growth in U.S. ethane production will be exported to supply growing international demand, the Energy Information Administration says.

However, the U.S. Department of Commerce is now notifying U.S. exporters that they need to apply for export licenses to export ethane and butane to China.

Enterprise Products Partners, one of the biggest exporters of ethane and butane via its terminals, warned on Thursday it “cannot determine whether the Partnership will be able to successfully obtain any required BIS license in a timely manner, or at all, for applicable transactions involving Covered Ethane and Butane Products.”

Under a notice from the Bureau of Industry and Security (BIS), U.S. exporters, including Enterprise Products Partners, are required to submit an application for a validated license prior to the export, re-export, or transfer (in-country) of any ethane or butane products when a party to the transaction is located in China, or is a Chinese “military end user,” wherever located, except for certain eligible license exceptions.

China is a major market for U.S. ethane, and the need for export licenses could slow the trade in the coming weeks and months until exporters obtain such licenses.

Yet, U.S. ethane production and exports are set to benefit from petrochemical firms in Asia shifting feedstock from naphtha to the cheaper ethane as chemicals margins shrink.

By Tsvetana Paraskova for Oilprice.com

The Battery Tech That Could Replace Lithium

By Felicity Bradstock - May 31, 2025

• Inlyte Energy, led by Stanford researcher Antonio Baclig, is advancing iron-sodium battery technology first explored in the 1970s, using table salt and iron as core components.

• With successful module testing and a field project launching in Alabama with Southern Co., Inlyte is positioning itself for large-scale deployment.

• These batteries are safer, cheaper, and made from domestically sourced, abundant materials—potentially outperforming lithium-ion in cost and duration for grid-scale applications.

As governments and companies look to a future run on renewable energy, the need for utility-scale batteries is greater than ever. Currently, the dominant battery form is the lithium-ion battery, which is produced using lithium and other critical minerals, a market dominated by China. While this type of battery is extremely useful for electronics, electric vehicles (EVs), and utility-scale storage, demand for lithium is expected to outpace supply in the coming years. For years, researchers have been assessing the potential for alternative battery technology to support a green transition, and one company believes it may have finally found the solution.

Antonio Baclig spent around eight years at Stanford University searching for alternative battery forms that could be used for utility-scale storage. Finally, Baclig believes he may have found the answer, using technology first developed in the 1970s that uses table salt. Baclig explored a wide range of battery technology and eventually found a family of sodium metal halide batteries. The British company Beta Research was the first to develop iron-sodium batteries, but it eventually shifted to nickel-sodium in the 1980s due to its greater energy density.

Iron-sodium batteries may be better suited to the needs of today, and Baclig is continuing research that was previously left behind. He believes the technology could help his start-up, Inlyte Energy, which was founded in 2021, to develop low-cost, long-term energy storage. Compared to EVs, which require batteries to hold vast amounts of power in a small space – something the nickel-sodium batteries offer – power plants do not need to contain so much energy in such a small space. “We have to focus this on cost now. It’s not [primarily] about energy density,” stated Baclig.

Baclig connected with Beta Research and partnered with the British firm in 2022 to continue developing the previously paused battery research. The collaboration has resulted in the creation of a scaled-up cell in the form of a ceramic tube filled with powdered iron and salt, which holds 20 times more energy than the previous cells that were developed with EVs in mind. Inlyte has since carried out a successful testing phase on a 100-cell module. Baclig explained, “That was our first module, and it just worked. We’re building on something that has a long track record, so we don’t have to reinvent.”

The use of pre-existing, tried-and-tested technology has allowed Inlyte to fast-track the development of the larger batteries and progress quickly to the testing phase. Inlyte has already signed its first major utility contract with Southern Co., which owns the biggest utilities in Alabama, Georgia, and Mississippi. Southern has agreed to install an 80-kilowatt/1.5-megawatt-hour Inlyte demonstration project near Birmingham, Alabama by the end of 2025. This project will work as a field-testing project before Inlyte deploys the technology on a larger scale. Southern Co. will install and operate the first large-scale Inlyte battery system for a minimum of one year as part of its plans to test innovative long-duration storage systems in the field. 

The technology is highly appealing to companies looking for alternatives to lithium-ion battery technology because it has a low fire risk, as it does not use flammable electrolytes – which lithium-ion batteries do. The components required for production can also be sourced domestically, which is viewed as increasingly important in the current economic environment. Further, the materials required to produce the battery are extremely low cost, the manufacturing process is straightforward, and the technology appears similarly efficient to lithium-ion batteries. 

Ben Kaun, Inlyte’s chief commercial officer, said, “Our batteries use abundant, low-cost metals.” Kaun explained, “Iron-sodium batteries have this interesting feature where if you want to make a longer-duration battery, you just need to add more iron and salt. Once you’ve built one that cycles to a five-to-ten-hour discharge rate, you can add more iron and salt to get 24 hours of backup power.”  Kaun added, “We are even outperforming lithium on certain metrics.”

Inlyte raised $8 million in seed funding in 2023 and acquired Beta Research’s U.K. facility to develop the technology. It recently announced a strategic partnership with the Swiss firm Horien Salt Battery to scale up production for its first U.S.-based factory. This suggests that Inlyte may soon be progressing past the pilot phase of battery testing to commercialisation. Kaun explained, “Once we hit the gigafactory level, we anticipate that our technology will be able to compete with lithium-ion for use cases like load shifting and will offer a cost-effective, safer solution for grid-scale projects.”

The road to assessing and testing alternative battery technology is long and arduous, and many start-ups have failed along the way. Often, alternative battery options have been found to be unsuccessful when tested in a real-world setting. However, Baclig and his partners are hopeful that the use of the pre-existing technology and the success experienced in the pilot phase will help Inlyte to produce an alternative, low-cost storage solution that does not rely on finite lithium supplies and can be manufactured domestically.

By Felicity Bradstock for Oilprice.com

CCS

From Leader to Laggard? U.S. Faces Carbon Capture Slowdown as EU Surges Ahead

By Leon Stille - May 31, 2025, 6:00 PM CDT

• Europe has taken a decisive regulatory lead in carbon capture and storage (CCS) by mandating that oil and gas companies develop 50 million tonnes of CO2 storage capacity by 2030.
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• The U.S., once the global frontrunner in CCS due to generous incentives like the 45Q tax credit, is now facing stalled momentum.
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• This transatlantic divergence signals a shift in global CCS leadership, with Europe offering regulatory certainty and infrastructure planning that may attract investment.
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Carbon capture and storage (CCS) has long been recognized as a critical technology for achieving net-zero emissions, particularly in hard-to-abate sectors like steel, cement, and chemicals. Historically, the United States has been at the forefront of CCS development, propelled by generous subsidies and tax incentives, notably the 45Q tax credit enhanced by the Inflation Reduction Act (IRA). However, recent policy developments in Europe signal a strategic shift that could redefine global leadership in CCS.

The U.S. approach: A market-led model facing political uncertainty

For years, the United States has been the global frontrunner in CCS deployment, thanks to a market-based approach centered around financial incentives. The 45Q tax credit, bolstered by the IRA, offered up to $85 per tonne of CO2 captured and stored in geological formations, and up to $180 per tonne for direct air capture (DAC) projects. These incentives sparked a surge of interest and investment, with over $320 billion in clean energy projects announced in the wake of the IRA—many incorporating CCS as a key decarbonization tool.

The enthusiasm for CCS in the U.S. market remains strong. Companies and investors are still eager to pursue large-scale projects, and the technological expertise in CCS is considerable. However, the political landscape has introduced significant uncertainty. Proposed legislation to repeal or weaken key provisions of the IRA has created a cloud of doubt over the future of CCS incentives. Already, this policy instability has led to the cancellation or delay of major projects, with estimates suggesting that over $14 billion in clean energy investments have been shelved due to fears that the regulatory framework may shift.

This political uncertainty undermines investor confidence and makes it harder for companies to commit to the long lead times and high capital costs required for CCS projects. As a result, while the interest and market potential for CCS in the U.S. remain strong, the momentum is at risk of stalling.

Europe’s regulatory mandate: A new model for CCS deployment

In contrast, Europe is taking a more direct and regulatory-driven approach. Under the recently adopted Net-Zero Industry Act, the EU has introduced a groundbreaking requirement: oil and gas companies must collectively develop and reserve at least 50 million tonnes of annual CO2 storage capacity by 2030. This mandate is proportionally assigned, with each company’s obligation based on its historical production levels, ensuring that those most responsible for emissions contribute the most to the solution.

This shift marks a fundamental departure from the U.S. model. Rather than relying on voluntary market signals and financial incentives, Europe is creating a binding legal obligation—turning CCS from a niche technology into a critical pillar of its industrial decarbonization strategy. By designating these storage projects as Net-Zero Strategic Projects, the EU also accelerates permitting processes and unlocks access to funding mechanisms like the Innovation Fund, supported by revenues from the EU ETS.

This regulatory certainty offers investors a stable environment in which to commit capital, reducing risk and providing a clear roadmap for the long-term development of CCS infrastructure.

A shift in global momentum

The contrasting approaches between the U.S. and Europe highlight a shifting dynamic in global CCS leadership. The U.S. market, once the undisputed leader in CCS due to its financial incentives, now faces a potential slowdown as policy uncertainty erodes confidence. While interest and market conditions for CCS in the U.S. remain strong, the lack of stability in the regulatory environment makes it difficult for projects to reach final investment decisions.

Europe, by contrast, is creating a stable and predictable policy framework that reduces uncertainty and drives investment. By mandating the development of storage capacity, Europe ensures that the infrastructure will be in place to support decarbonization efforts across multiple sectors—from steel and cement to hydrogen and negative emissions technologies. This approach positions Europe as a growing center of gravity for CCS innovation, offering a blueprint that other regions may seek to emulate.

Oil and gas companies as part of the solution

In previous publications, I have discussed how oil and gas companies can contribute to the energy transition—not just as suppliers of fossil fuels, but as builders of critical infrastructure for a net-zero future. Europe’s CO2 storage mandate is a clear example of this vision in action. By leveraging their expertise in subsurface operations, oil and gas companies can develop the storage capacity that will serve as the backbone of Europe’s industrial decarbonization strategy. This is a tangible way for these companies to contribute positively to the transition, using their resources and knowledge to solve one of the most pressing challenges of the clean energy shift: where to safely and permanently store CO2.

Conclusion

The European Union’s CO2 storage mandate is more than just a regulatory milestone—it is a turning point for the global CCS industry. By creating a legally binding requirement for storage development, Europe is providing the certainty that markets and investors need to scale up CCS projects. In contrast, the U.S., despite its early lead and the market’s ongoing interest, risks losing momentum due to political instability and the potential rollback of critical incentives.

This transatlantic divergence has far-reaching implications. As Europe accelerates its CCS deployment, it positions itself as a leader in the global race to decarbonize heavy industry. The U.S., meanwhile, faces the risk of ceding its leadership role unless it can provide stable and predictable policy support.

The challenge now is clear: Europe must act swiftly to implement its ambitious plans, and the U.S. must ensure that political uncertainty does not undermine its CCS potential. The world is watching, and the choices made today will shape the industrial landscape of tomorrow.

By Leon Stille for Oilprice.com