Oil Storm

With the price of gas back at levels seen five years ago, the world seems in stasis again--except possibly for the sucking economy. However, the pressure of high gas prices has lifted and everyone seems to be breathing a sigh of relief. If only that were the case.

We are cursed with poor long-term memory. Just nine months ago, the US (indeed, the whole world) was in crisis precipitated by rapidly rising oil prices. Granted that much of that price fluctuation was the result of financial speculation. However, the fact remains that 1) oil consumption is growing faster than oil discovery; 2) what oil is newly discovered is more costly to produce than previous fields; and 3) oil is a finite resource--we are going to run out at some point.

I am reminded of a movie that was broadcast on the FX cable channel back in 2005 called "Oil Storm." [Link to a YouTube trailer for the movie: http://tinyurl.com/87jlh8] Before many similar actual events occurred, it depicted the impact of a large hurricane hitting the critical oil region of the Louisiana coast. Except for the riots and general breakdown in civil law, it was a very good prediction of the events that resulted from Katrina.

While the similarities end with Hurricane Katrina, the movie also points to several additional weaknesses in the US dependency on oil:

1. Both China and India are rapidly increasing their consumption of oil. As a result, they are now cash-rich competitors for our oil dollars. This will place additional pressure on oil prices over the long-term. These countries can outbid the US for oil on the open market. Oil prices will go back up.
2. While most of our oil is imported from "friendly" countries such as Canada and Mexico, over time, we will become more dependent on other emerging countries such as Venezuela, Russia, and the "Stans." To say the least, these countries do not particularly love the US. At worst, they can hold the US for oil ransom. This doesn't address the fact that many of these emerging oil nations are unstable and therefore their oil production is questionable at any given time. A perfect case in point is that as this post is written, Russia has cut natural gas supplies to the Ukraine. Since the major pipelines that supply natural gas to Europe pass through the Ukraine, Russia's actions are already causing short natural gas supplies in Germany. The same could happen with oil supplies.
3. While oil speculation has been tamped-down on the US-based commodities markets, there is nothing to prevent the same thing from happening again on other international markets that are closely-coupled to US markets. Therefore, volatility in oil prices should be expected over the next several decades, with the general trend being upward prices.

The problem is, we are in an "oil storm" now. We just don't realize it or we are in denial. While T. Boone Pickens has some personality aspects that I rather detest, he is one of a few that have stood up to state that we should reduce our dependence on foreign oil and has mapped a strategy to achieve that goal. [Link to Pickens Plan here: http://tinyurl.com/94z22d] Former Vice President Al Gore has done the same thing although his approach will be harder to achieve because it is more aggressive. [Link to Al Gore Site: http://tinyurl.com/24w6sq] Of course, Gore is attempting to halt global warming in addition to reducing our dependence on one of the causes, fossil fuels.

All this is nice, but cannot have an impact unless the actions can be converted to legislation. President-elect Obama has demonstrated strong support through the environment and energy leaders he has designated. Whether his agenda can be pushed through Congress remains to be seen. The fact is reducing our dependence on oil will require sacrifices in the short-term. Whether we feel enough pain to do that remains to be seen. One thing is for certain, like the old Fram Oil Filter advertisement, "You can pay me now or you can pay me later," the price will only go up over time. Therefore, it is in our mutual best interest to act now rather than later.

IBM's "The Next Five in Five"

For the second year, IBM has released their "The Next Five in Five," their prognostication of technology to expect within the next five years. While some of these forecasts might actually see the light of day, don't expect all of them to be in wide adoption by the end of 2013. That is, they will be seen--some commercially--but they won't be used by the everyday person. The forecasts are:

1. Solar cells will be cheap and built into everything from glass windows to paint to asphalt. In turn this will usher in an energy revolution. Realistically, this is at least a decade away from widespread use.

2. You will be able to forecast your health through a diagnostic "crystal ball." Currently in limited use today, this forecast builds on increasingly sophisticated DNA analysis coupled with increasingly sophisticated clinical-labs-on-a-chip. Screens for certain cancers and other diseases are a real possibility in the next five years. Some are available today.

3. You will be using the "spoken Web." As IBM states, more of the world is spoken language literate than it is written word literate. Therefore, in order to reach a wider audience, the Web must go "verbal." This is already happening on a number of fronts. First, most PCs and Macs today can convert written words to voice. A number of services will allow you to access your email verbally using a phone. Second, with technologies introduced by Google, search requests can be made using the spoken word. The reverse is also true. Services such as Jott and Evernote will take spoken words and convert them to text. This trend is sure to increase over the next five years.

4. You will increasingly have access to and use "digital shopping assistants." Many are here today. For example, Ikea has terminals throughout their stores for customer use to look-up and find merchandise. A number of Web applications will allow you to comparison shop. Phone-based applications allow you to do the same thing right in the store. Finally, with location-aware phones, it is possible for an application to make shopping suggestions based on your current location. These capabilities will only get more sophisticated in the next five years.

5. You will never forget anything. A strong statement to be sure. IBM is referring to the huge number of technologies that are currently available or will be available in the next five years that will allow a person to record and recall information using spoken word, digital images, or captured screen shots. The technology will enable tagging, indexing, scheduling, and recall of virtually anything. Again, a variety of "To Do" list applications do this today on cell phones and synchronize that information so it can be accessed on the Web or many other devices. These capabilities--such as "Remember the Milk," "Jott," and "Evernote"--will become more sophisticated, accurate, and feature-rich over the next five years.

A complete description of "The Next Five in Five" can be found at:

http://www-03.IBM.com/press/us/en/pressrelease/26170.wss

What say you?

[Posted with iBlogger from my iPhone]

Now is the time to tax oil

I filled up my car this morning and it occurred to me that gas prices are about half what they were in June at the height of the latest gas-price spike. To a large extent, the increased gas prices have contributed heavily to our downward spiralling economy--resulting in increases in everything from gasoline to milk, virtually anything that has oil fuel as a component in manufacture or distribution.

During the summer, with oil prices high, the country (indeed, the whole planet) has had a long overdue discussion on our over-dependence on oil, oil's impact on our environment, the funding of hostilaties against us in oil-producing regions where we are not particularly liked, and the instability it creates in our economy. Unfortunately, a lot of TGIF discussion is beginning to die down now that oil prices are coming back down to levels seen before the latest spike. And that is the problem.

We have short-term memories. Assuming the financial crisis is resolved and credit begins flowing again, people will flock to the sharply reduced over-sized, gas guzzling SUVs--at least they will until the next gas spike. And that's the problem, our short-term memories get in the way of developing good, long-term behavior. There is a solution.

Taxes. I know it is an obscene concept, but taxation can play a very pivotal role in the transition to a non-oil-based economy. The problem is two-fold. First, as long as oil is incrementally cheaper than alternatives, there is little incentive to innovate alternatives. However, the point at which oil costs permanantly exceed alternatives, the impact will be devistating until such time as alternatives and the infrastructure are developed to deliver them. This is where taxation can play a positive and constructive role.

Increasing taxes on oil can level the competitive market allowing alternatives to be developed more rapidly. This would be done by two forces: first, taxes on oil would make oil consumption less attractive, resulting in higher tax revenues per gallon of fuel consumed and providing money that could be used to subsidize fledgling alternative fuel sources until they can gain economies of scale. A second benefit results from reduced consumption which in turn results in reduced demand, which in turn results in reduced oil prices. Keeping taxes on oil at an artifically high level basically means that oil producing nations help subsidize our development of alternatives. As the cost of alternative fuel production falls, subsidies can be lifted and oil taxes can be reduced, allowing natural market forces to take over.

So, we can pay now or we can pay later for the transition from oil. The longer we wait, the higher the cost. Had we heeded President Jimmy Carter's warning, we would not be in this situation.

Your thoughts?

[Posted with iBlogger from my iPhone]

Politics and Our Future

Over the past two weeks, we have seen grand showmanship by two political parties, both extolling change. While I have my personal political view (known to most of my acquaintances and friends), that is not the subject of this post. Rather, this post is on the subject of what has not been addressed by either party (or inadequately addressed) that has the most impact on the future of the U.S., its future economic viability, and its standing among world communities. I believe that the following two issues are of critical importance. I present them with factual realities and the inadequacies of both party's position. In reading further, it will become obvious that the issues being discussed and the solutions being proposed by both parties are found lacking in effecting real change. It is also obvious that what is being discussed by the popular press (from the right, center, or left) fails to address root cause issues or to hold the candidates accountable for inadequate solutions. Once again, the fourth estate has failed us.

• The National Debt: Neither party appears prepared to tackle what could arguably be one of the most critical long-term issues facing the U.S. today. The National Debt (not the deficit, which is something entirely different) today stands at around $9.7 trillion and has been growing at a rate of $.5 trillion per year for the last 7 years. During that time, taxes have been reduced. Barack Obama has proposed a PAYGO system to "pay as you go," and has voted in the past to not raise the ceiling on the National Debt. However, he has not stated how he intends to REDUCE that debt. John McCain has proposed to balance the budget 2013, but has not stated when, how, or what he would do to REDUCE the debt. He also has not made a commitment to stand firm on the debt ceiling. While both candidates play to the immediate gratification of reducing taxes now (whether for the rich or middle class is irrelevant), nobody seems to be holding the candidates accountable for the real issue and how to address it sooner rather than later. In the meantime, nine cents of every dollar now goes to pay interest on the National Debt. With the war in Iraq and Afghanistan continuing to be financed with debt, and with increasing support of failing banks also being financed with debt, it is now obvious that the National Debt will top $10 trillion before whoever the winner is takes office. It should be remembered that debt, and the rate of increase in issuing additional debt instruments (whether printing money or IOUs) directly contributes to inflation (oil is not the only cause).

• Energy Reform: Both candidates have extensive platforms that will reform our energy consumption and sources and they are both to be congratulated--as far as they go. Unfortunately, neither go far enough. First, while government should not be in the role of directing private energy development, they are through continuing subsidies to the major oil companies. At the same time, the Congress has failed to pass energy tax credits for alternative energy (with the exception of ethanol production which amounts to an agricultural subsidy that has already destabilized crop prices and will continue to do so). McCain proposes the development of 45 nuclear generation plants by 2030 which means not one watt of electricity will come on line during his administration or his successor's administration. At the same time, his platform is to "Drill baby, drill," as the chant from the Republican National Convention so eloquently phrased it. Yet, if an oil company elected to begin drilling, it would take years to gain approval, more years to equip and drill, and even more years to bring successful wells (not all are) to production. Estimates range from many years to decades. Again, additional oil production from this approach will not be seen in any volume during a McCain administration. Since Obama has also supported this approach (although limited), the same holds true for his administration. Simply put, the most rapid solution would be to decrease subsidies to the oil companies and shift those subsidies to alternative energy solutions--and not just to ethanol production. While it would have a short-term increase cost to energy, it would have a long-term stabilizing effect (and possibly lead to a reduction). Yet neither candidate is willing to make this commitment.

What do you think are the real issues impacting our future? I'd like to know.

Sources:

"The Debt to the Penny and Who Holds It," TreasuryDirect, http://www.treasurydirect.gov/NP/BPDLogin?application=np

"Issues," McCain-Palin Campaign, http://www.johnmccain.com/Informing/Issues/

"Issues," Obama-Biden Campaign, http://www.barackobama.com/issues/

"Obama, McCain on the Issues," by Calvin Woodward, Associated Press, September 8, 2008, http://hosted.ap.org/dynamic/stories/W/WHERE_THEY_STAND?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2008-09-08-16-58-15

"Why Lifting the Offshore Oil Ban Won't Help Gas Prices," by Kathy Gill, Kathy's US Politics Blogg, http://uspolitics.about.com/b/2008/07/17/why-lifting-the-offshore-oil-ban-wont-help-gas-prices.htm

Energy - Time for a Real Change

Since I last posted in March, 2008, a lot has changed. The debate in a Bush press conference about whether gas would go to $4.00 a gallon was settled with Bush looking even more out of touch with real Americans than ever. Oil prices blew past $130 a barrel to peak in the high $140s. It has since dropped back somewhat, but still double what it was a year ago. Congress has responded by...doing basically nothing. They have still not passed an extension to incentives for the development and deployment of alternative energy. The President has responded the way he has for most of his life, proposing to drill more holes domestically.

It is a sad state of affairs that our two presumptive presidential candidates don't seem to realize the criticality of our energy dependence. McCain, like Bush wants to maintain the status quo and continue to drill more holes domestically. Obama talks a good game, but spends more time on global warming than he does on alternative energy, an indication that he doesn't realize they are intertwined.

Interestingly, the only sane ones talking this summer is 1) automotive manufacturers; 2) T. Boone Pickens; and 3) Al Gore. First, the major automotive manufacturers seem to understand the criticality of the situation. With Mercedes importing the Smart Car; with Toyota and Honda flooding the market with hybrids and high gas mileage compacts; with Ford making a major conversion from gas-guzzling SUVs to more fuel-efficient small cars and hybrids; and with GM going beyond Ford to develop and electric car and the infrastructure to support it, it seems that the automotive industry gets it. Hopefully it's not too late.

While I tend to disagree with most everything T. Boone Pickens has to say, I now find myself in agreement on his proposal to convert to wind energy. While he stands to make a bundle on the success of this proposal (he somehow always does), his proposal has merit. With the support of the Texas Legislature and the Texas PUC, he now has the power lines to major cities in the pipeline to make it at least a reality in Texas. Hopefully, other deep-pocket investors will follow his lead and pour money into alternative energy even if Congress is too stupid to extend incentives.

Then there is Al Gore's audacious challenge to the presidential candidates to commit the U.S. to weaning itself from oil within 10 years. The candidates haven't responded. I think it is time they did. It is time for the U.S. to put up or shut up. While going to Mars is a nice challenge that will bring returns in technology and health care improvements, a grand challenge to move off oil within 10 years will bring returns in terms of survival and our way of life continuing for our children and grand children. Oil is in short supply. Regardless of the number of wells drilled, the demand will outpace supply. That's the most optimistic view. If there continues to be de-stabilization in the Middle East, it will be even worse. If the Gulf Coast continues to endure storms damaging drilling platforms and off-loading facilities, it will be even worse. If we continue to wage war on a credit card to the tune of $12 billion per month, the Chinese and Indians will be able to pay cash and it will be even worse.

The fact is, it is going to get worse before it gets better. Therefore, we can bite the bullet and make an all-out effort as proposed by Al Gore, thus preventing the massive transfer of U.S. wealth as forecasted by T. Boone Pickens, or we can continue the status quo, forsaking our position in the world and leaving a much poorer legacy to our children. It is going to be painful for the next 10 years. If we don't do this, it could be we don't survive as a nation.

Weigh in whether you agree or disagree. The need is to have the discussion.

Alternative Power Ideas

I was reading a posting by Scott Adams in his Dilbert Blog about harnessing the power when an elevator comes down (see http://dilbertblog.typepad.com/the_dilbert_blog/2008/03/elevator-power.html)and this got me to thinking about a recurring idea of mine: urban wind farms. I live in Plano, Texas. At the present time, there is approximately a 30 MPH wind blowing. This is not unusual for this part of the country. Indeed, it has done the same thing over several days of the past week. We get a lot of wind.

Therefore, if there was some way to economically capture energy from that wind, it would make sense. There are several requirements to have a viable wind farm: 1) you need wind; 2) you need connectivity to the power grid; and 3) you need permit and access to place a wind generator. As stated earlier, we have a lot of wind, so requirement 1 is met. As for the second requirement, a good place to gain connectivity to the grid that is everywhere in an urban area is the standard light pole that dot many streets. As for permitting, the big argument is that the wind generator detracts from the surrounding beauty of the neighborhood. However, since when is a light pole pretty. They are ugly and they are everywhere, so why not make the most of a bad situation and use them for double-duty--light pole and wind generator tower. Since the light pole is tied to the power grid, are typically well-anchored, they would make a great location. A few statistics will demonstrate how attractive this alternative is.

Plano, Texas is a rather spread out city of somewhere around 160,000 people. if we eliminate the residential roads and only concentrate on the main thoroughfares in the city, I would guess that there are 5 running east-west and 10 north-south. From city limit to city limit, I would guess that Plano is 9 miles wide and 7 miles long (main road areas and I want to be on the conservative side). That means there are 45 miles of east-west road and 70 miles of north-south road, for a total of 115 miles of usable road.

Using that number and being conservative using a light pole every 300 feet (conservative because in many places there are two poles on the roadway because it is divided lanes), this would give 2,024 usable light poles. Again being conservative and using a smaller wind generator in the range of 250 Kwh each, this means that putting a wind generator on each pole would pump more than 500 Mwh into the grid!

A good estimate based on some fast research on the Web is that the average home uses 850 Kwh of energy per year. This means that my city-wide wind farm would generate enough electricity to power to power almost 600 homes for a year.

In actuality, there are many more generators that could be installed in a city such as Plano and my guess is that the typical capacity would be more like 500 Kwh. Think of all of the towns across the US in high wind areas (Chicago comes to mind for example, not to mention every city and town in most of the west). I think this idea has merit.

Peak Oil versus Peak Demand

I was listening to the Diane Rehm Show (NPR) this morning and there was a discussion about whether the energy industry has reached "peak oil,"--the point at which oil production peaks, subsequently leveling off, and then declining. While I did not have the time to listen to the whole discussion, the debate seemed to revolve around when oil production would peak. The years mentioned ranged from 2012 to 2030. However, I would propose that the argument is misguided. Debating when peak oil production will occur is a little like being in a leaky boat and debating when the volume of water coming into the boat will peak. It becomes irrelevant when one considers that the boat is adding people into the boat faster than water is being bailed from the boat; at some point the boat is going to sink, regardless of whether the boat has reached peak water intake. If people are coming on board faster than water is being bailed, the boat is going to sink. Indeed, if the water leak is fixed and people keep coming on board, the boat is going to sink.

In the same way, whether the oil industry has reached peak oil production is irrelevant: The "peak" point that is important to understand is when demand exceeds production. Once that point is reached (for world oil production, it has already been reached), what is important to understand is the "oil gap."

The oil gap is the difference between oil production and oil demand. As the gap increases, oil prices increase (price is determined by supply and demand). At some point, the price reaches a point were substitute energy sources become price competitive. This is the environment we are in today.

Therefore, the question becomes not when oil production peaks, nor when oil demand exceeds oil production. Rather the important question is when demand drives oil prices to the "tipping point" where alternative energy sources become cost competitive. At that point, those organizations developing alternative energy sources, particularly renewable or sustainable energy sources, become competitively advantaged in the market. Therefore, the debate should not be when oil production will peak, but when alternative sources become advantaged. At that point, those organizations that have been investing in alternative energy sources will be the hot stocks for the near-term future. The next Googles are out there ready to take off.