Saudi $2 Trillion 'Post-Oil Era' Investment Fund

by: Bill James

Summary

Life requires energy. Oil is finite. Saudis understand that economic dependence on oil is terminal.

US infrastructure retooling is a $5 trillion market in the "Post-Oil Era".

Massachusetts Senate Bill #1837 (The Performance Standards Law) provides the legal framework to fund retooling transportation, for building the Physical Internet.

Transportation is the catalyst for changing energy systems.

There is a 10x conversion of costs to value in retooling urban mobility networks.

Disclaimer, the author is the founder of JPods Inc., a company working to re-tool. Some data used in this article is specific to JPods networks.

Aside from the $2 trillion, the Saudis' "Post-Oil Era" Fund should be sending shockwaves through long-term investor networks. What the Saudis clearly stated is they must get their own economy off oil within 20 years:

  • Life requires energy.
  • Oil is finite.
  • Economies powered by oil are terminal.

To better understand the reality of Peak Oil, here are links to excellent summaries of Energy Economics and Peak Oil. US Peak Oil occurred in 1970; US Peak Fracking happened in July 2015 with production nearly a million barrels per day below that peak. Current low oil prices (relative to cost of labor) will never be seen again. The age of affordable oil has passed. As fracked wells quickly deplete, the 10-day "glut" capacity will deplete with food and all energy prices rising.

This article is for long-term investors, not day traders. The following graph illustrates the advantage of understanding and investing correctly in the long term (link). Investing in infrastructure deployment:

  • Builds from a "long tail" (bottom).

  • Brings high return on investment during the "long wave" (center).

  • Decreases return on investment in a long tail (top).

The return on investment in roads began dropping in a long tail 20 years ago. As with the analog telephone network, highway networks of moving tons to move a person are radically less efficient than the next wave will provide.

Next Wave

The Saudis' $2 trillion will help trigger the next wave of investment. American infrastructure history shows that waves of infrastructure investment opportunities are about 55 years apart. Applying the principles of computer networks to transportation will be the next big wave. The success of Uber (Private:UBER) is a start, but it is digitizing the analog highway network that will cut the energy cost of moving 2 tons to move a person. Networks trump devices.

This digitizing of transportation networks started with building the PRT network in Morgantown, WV as a solution to the 1973 Oil Embargo. It is still operating today and has delivered 110 million oil-free, injury-free passenger-miles.

The Congressional Office of Technology Assessment study PB-244854 (published 1974) warned of "institutional failure" by the Federal government if it did not implement these networks to make American cities independent of foreign oil. That warning has gone unheeded; just as Federal monopoly protected rotary telephones for half a century, so transportation and energy innovations have been stifled by Federal monopoly.

A number of companies are working to break these monopolies to profit by converting into profit and customer savings 90% of the 59.2 cents/car-mile that highway networks cost. Freight railroads average 476 ton-miles per gallon, over 140 times the efficiency of highway networks. Combining rail efficiency with computer networks is the key to converting traffic costs into value-creating the Physical Internet.

ET3 and Hyperloop (an Elon Musk spin-off) are major efforts to create the "fiber-optics" of transportation:

For urban mobility - the "WiFi of the Physical Internet®" - there are a number of efforts emerging:

The Town of Secaucus, NJ passed the Performance Standards Law (Ordinance 2014-23). Massachusetts Senate Bill #1837 supports deploying such networks, based on 6 points:

  1. Build with private capital.

  2. Operate without government subsidies.

  3. Exceed 5 times the gas mileage of cars.

  4. Exceed the safety of highways.

  5. Pay 5% of gross revenues to Rights of Way holders (state and municipal governments).

  6. Regulate based on Theme Park standards:

    • Tailored to focus on pedestrians, especially children.

    • Existing insurance industry.

    • Existing enforcement industry.

    • Existing common law.

    • Safety record thousand times better than DOTs'.

A presentation given to NJDOT illustrates converting into value $23 billion/year of the $35.8 billion/year that traffic costs the people of New Jersey. NJDOT is currently blocking the easement needed to cross a state Right of Way. Just as the Federal communications monopoly delayed commercialization of the Internet until it was deemed unconstitutional in 1982, the primary barrier to sustainable transportation is regulatory.

The hearing with Boston City Council was recorded and underscores that the regulatory environment must change for innovation to progress.

Metrics for "Post-Oil Era" Infrastructure Investing

The "long tail" ramping to changes of infrastructure means that small investments have great leverage. Picking what and who to invest in is the challenge.

At JPods, we use 4 metrics to guide our efforts. These may be helpful to others trying to determine how to invest in sustainable transportation infrastructure companies in the shift to the "Post-Oil Era." At the core is the fact that life requires energy:

  1. Energy consumed per unit of economic work. The 140,000 miles of freight railroads in the US average 476 ton-miles per gallon. This is over 140 times the efficiency of moving a ton to move a person in highways - in a car or on a bus. Passenger trains are only 20% less wasteful than cars, without the on-demand service of cars.
  2. Net Energy measures how much economically, useful energy is obtained per unit of energy required to get that energy. At the beginning of the 20th Century, the Net Energy of oil was 100:1. As oil fields depleted, this has dropped to 3:1. Solar and wind now have Net Energies over 20:1. Applying solar and wind to transportation is key to sustainable mobility networks.
  3. Parasitic Energy Ratio. "Beam me up, Scotty" would be the perfect case, where energy is applied only to moving the payload. Parasitic Energy Ratio is a ratio of the kinetic energy of the moving mass divided by that of the payload. The velocity squared and constants cancel to a simplified Moving Mass divided by Payload Mass times Start-Stops. Moving a two-ton car in start-stop traffic to move a person requires hundreds of times the energy to move just the person. Highways are highly parasitic.
  4. Prime Law of Network. The value of a network increases exponentially based on the number of interconnected nodes. As an example, when 25 people had email, no one needed email; when 25% of people had email, everyone needed email. The NYC subway has a 31% network density. The percent of interconnected nodes makes this the only mass transit network in the US that is not a financial disaster.


Investment Approach

Regulatory barriers are holding back the deployment of PRT networks that will convert 90% of current traffic costs into value. Watch for changes in regulation to signal opportunity. JPods expects to sign agreements on April 28th in India.

Watch the movie Pirates of the Silicon Valley on how personal computer industry hit a tipping point. This is the early story of Steve Jobs and Bill Gates. The Federal communications monopoly being broken in 1982 allowed the personal computer to become a communications tool.

The industry is still very tiny. Nearly all of those working on PRT networks are easily reached personally. Anyone wanting a list of competitor names may contact me. If there is interest, I will post another article summarizing the various efforts.

Read the book Nothing Like It in the World. This book is about how the transcontinental railroads were financed and built. At JPods, we have a mandatory reading list to build an understanding of the market and what will be required to succeed in it.

To get a personal understanding of how these networks will impact value, download JPods' RouteTime software and design networks for your own community.

Summary

  • Life requires energy. Every long-term investor in infrastructure must identify an energy source that will run that infrastructure.

  • Oil is finite. The Saudis are experiencing Peak Oil and adjusting. The US experienced Peak Oil in 1970, failed to adjust, with Federal debt increasing to $18 trillion in tandem with oil imports.

  • Economies powered by cheap oil are terminal. There is still lots of oil but the 4 million barrels per day now produced by fracking will be largely depleted over the next 30 months. Powering highway infrastructure with cheap oil will soon be a thing of the past.

  • In wave after wave, more efficient infrastructure displaces less efficient predecessors.

  • There is zero to 20 years to dramatically retool infrastructure to survive in the "Post-Oil Era."

  • Highway networks will be displaced by networks that combine the efficiency of freight railroads with the on-demand service of the Internet - the Physical Internet.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.