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]